**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        DC 20549**
 
 **Form
        10-KSB**
 
 
 (Mark
                        one)o
                    **Annual
                        Report Under Section 13 or 15(d) of The Securities Exchange
                        Act of
                        1934**For
                        the fiscal year ended _________________x
                    **Transition
                        Report Under Section 13 or 15(d) of The Securities Exchange
                        Act of
                        1934**For
                        the transition period from October 1, 2004 to June 30,
                        2005
 
  Commission
        File Number: 0-14247
 
 **IsoRay,
        Inc.**
 (Exact
        name of small business issuer as specified in its charter)
 
 Minnesota
              41-1458152(State
                  of incorporation)
              (IRS
                  Employer ID Number)
 
 350
        Hills Street, Suite 106, Richland, WA 99354
 (Address
        of principal executive offices)
 
 (509)
        375-1202
 (Issuer's
        telephone number)
 
 
 
 Securities
        registered under Section 12 (b) of the Exchange Act - None
 
 Securities
        registered under Section 12(g) of the Exchange Act: - Common Stock - $0.001
        par
        value
 
 
 Check
        whether the issuer has (1) filed all reports required to be filed by Section
        13
        or 15(d) of the Exchange Act during the past 12 months (or for such shorter
        period the Company was required to file such reports), and (2) has been subject
        to such filing requirements for the past 90 days. Yes x No o
  Check
        if
        there is no disclosure of delinquent filers in response to Item 405 of
        Regulation S-B contained in this form, and no disclosure will be contained,
        to
        the best of Company's knowledge, in definitive proxy or information statements
        incorporated by reference in Part III of this Form 10-KSB or any amendment
        to
        this Form 10-KSB. o
  Indicate
        by check mark whether the Registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act):
  Yes x
        No o
  The
          issuer's revenues for the nine month transitional period ended June 30,
          2005
          were $-0-.
  The
          aggregate market value of voting common equity held by non-affiliates as
          of
          October 3, 2005 was approximately $34,020,870.
  As
          of
          October 3, 2005, there were 8,996,340 shares of Common Stock issued and
          outstanding.
  Transitional
          Small Business Disclosure Format : Yes  o No x
  
   **IsoRay,
          Inc.**
 (formerly
          Century Park Pictures Corporation)
 
 **Transitional
          Report on Form 10-KSB**
 **for
          the period from October 1, 2004 through June 30, 2005**
 
 **Table
          of Contents**
 
 Page**Part
                    I**Item
                    1
                Description
                    of Business
                1Item
                    2
                Description
                    of Property
                29Item
                    3
                Legal
                    Proceedings
                30Item
                    4
                Submission
                    of Matters to a Vote of Security Holders
                30**Part
                    II**Item
                    5
                Market
                    for Common Equity, Related Stockholders’ Matters, and Small Business
                    Issuer Purchases of Equity Securities
                30Item
                    6
                Management’s
                    Discussion and Analysis or Plan of Operation
                31Item
                    7
                Financial
                    Statements
                33Item
                    8
                Changes
                    in and Disagreements with Accountants on Accounting and Financial
                    Disclosure
                33Item
                    8A
                Controls
                    and Procedures
                34**Part
                    III**Item
                    9
                Directors,
                    Executive Officers, Promoters and Control Persons; Compliance
                    with Section
                    16(a) of the Exchange Act
                34Item
                    10
                Executive
                    Compensation
                38Item
                    11
                Security
                    Ownership of Certain Beneficial Owners and Management
                39Item
                    12
                Certain
                    Relationships and Related Transactions
                41Item
                    13
                Exhibits
                    and Reports on Form 8-K
                42Item
                    14
                Principal
                    Accountant Fees and Services
                43**Signatures**
                
                45
  
  **Caution
          Regarding Forward-Looking Information**
  All
          statements contained in this Form 10-KSB, other than statements of historical
          facts, that address future activities, events or developments are
          forward-looking statements, including, but not limited to, statements containing
          the words "believe," "anticipate," "expect" and words of similar import.
          These
          statements are based on certain assumptions and analyses made by us in
          light of
          our experience and our assessment of historical trends, current conditions
          and
          expected future developments as well as other factors we believe are appropriate
          under the circumstances. However, whether actual results will conform to
          the
          expectations and predictions of management is subject to a number of risks
          and
          uncertainties that may cause actual results to differ materially.
  Such
          risks include, among others, the following: international, national and
          local
          general economic and market conditions: our ability to sustain, manage
          or
          forecast our growth; raw material costs and availability; new product
          development and introduction; existing government regulations and changes
          in, or
          the failure to comply with, government regulations; adverse publicity;
          competition; the loss of significant customers or suppliers; fluctuations
          and
          difficulty in forecasting operating results; changes in business strategy
          or
          development plans; business disruptions; the ability to attract and retain
          qualified personnel; the ability to protect technology; and other factors
          referenced in this and previous filings.
  Consequently,
          all of the forward-looking statements made in this Form 10-KSB are qualified
          by
          these cautionary statements and there can be no assurance that the actual
          results anticipated by management will be realized or, even if substantially
          realized, that they will have the expected consequences to or effects on
          our
          business operations.
  As
          used
          in this Form 10-KSB, unless the context requires otherwise, "we" or "us"
          or the
          "Company" means IsoRay, Inc. (formerly Century Park Pictures
          Corporation).
  **PART
          I**
  **ITEM
          1 - DESCRIPTION OF BUSINESS**
  General
  The
          Company was organized under Minnesota law in 1983.
  The
          Company had no operations, assets or liabilities since its fiscal year
          ended
          September 30, 1999 through June 30, 2005.
  On
          May
          27, 2005, the Company, a newly-formed, wholly-owned subsidiary, Century
          Park
          Transitory Subsidiary, Inc., a Delaware corporation, Thomas Scallen and
          Anthony
          Silverman, shareholders of the Company, and IsoRay Medical, Inc., a Delaware
          corporation entered into a Merger Agreement ("Merger"). On July 28, 2005,
          the
          Merger closed. As a result of the Merger, IsoRay Medical, Inc. became a
          wholly-owned subsidiary of the Company. The Company concurrently changed
          its
          name to IsoRay, Inc. In the Merger, the IsoRay stockholders received
          approximately 82% of the then outstanding securities of the Company, as
          described below.
  The
          Company issued shares of its common stock and shares of its preferred stock
          to
          holders of common and preferred stock of IsoRay Medical, Inc. at a rate
          of
          0.842362 share of the Company’s common stock for each share of IsoRay Medical,
          Inc. stock. Options and warrants to purchase common and preferred stock
          of
          IsoRay Medical, Inc. were also converted at the same rate into options
          and
          warrants to purchase common and preferred stock of the Company. At the
          time of
          the Merger and following its recent 1:30 reverse stock split, the Company
          had
          2,498,319 shares of common stock outstanding. Following the Merger, the
          Company
          had approximately 10,237,797 shares of common and preferred stock outstanding.
          The total amount of shares outstanding, on a fully-diluted basis, post
          merger
          was 13,880,822, which included not only shares of common stock, but also
          shares
          of preferred stock, warrants, options and convertible debentures that could
          be
          exercised or converted into shares of common stock. Following the Merger,
          on a
          fully diluted basis, the shareholders of IsoRay Medical, Inc. owned
          approximately 82% of the Company’s outstanding securities.
   
  
  Description
          of Former Business Operations
  IsoRay
          Medical, Inc. was formed on June 15, 2004 as a corporation in the State
          of
          Delaware, and in October 2004 it merged with two predecessor companies
          to
          combine all of the IsoRay operations into one company.
  IsoRay
          Medical intends to utilize its patented radioisotope technology, experienced
          chemists and engineers, and management team to create a major therapeutic
          medical isotope and medical device company with a goal of providing improved
          patient outcomes in the treatment of prostate cancer and other solid cancer
          tumors. IsoRay Medical began production and sales of its initial Food and
          Drug
          Administration ("FDA") approved product, the IsoRay 131 Cs
          brachytherapy seed, in October 2004 for the treatment of prostate cancer.
          Management believes its technology will allow it to capture a leadership
          position in an expanded brachytherapy market. The more clinically beneficial
          characteristics of the Cesium-131 (Cs-131 or 131 Cs)
          isotope are expected to decrease radiation exposure to the patient and
          reduce
          the severity and duration of side effects, while treating cancer cells
          as
          effectively, if not more so than Iodine-125 and Palladium-103. Cesium-131
          offers
          a combination of patient benefits that management believes are superior
          to other
          currently available brachytherapy isotopes. Cesium-131 could also enable
          meaningful penetration in other solid tumor applications such as breast,
          lung,
          liver, brain and pancreatic cancer, expanding the total available market
          opportunity. The second radioisotope, Yttrium-90 (Y-90 or 90 Y),
          is
          currently being used in the treatment of non-Hodgkin's lymphoma and is
          in
          clinical trials for other applications. Other manufacturers have received
          FDA
          approval for 90 Y
          and
          IsoRay Medical believes production will not require clinical trials or
          an
          extensive FDA application process. Production is expected to begin in 2006.
  Brachytherapy
          seeds are small devices used in an internal radiation therapy procedure.
          In
          recent years the procedure has become one of the primary treatments for
          prostate
          cancer and is now used more often than surgical removal of the prostate.
          The
          brachytherapy procedure places radioactive seeds as close as possible to
          (in or
          near) the cancer tumor (the word "brachytherapy" means close therapy).
          The seeds
          deliver therapeutic radiation by killing
          the tumor cells and cells located in the immediate vicinity of the tumor
          while
          minimizing exposure to adjacent healthy tissue. This
          allows doctors to administer a higher dose of radiation at one time than
          is
          possible with external beam radiation. Each seed contains a radioisotope
          sealed
          within a welded titanium capsule. Approximately 85 to 135 seeds are permanently
          implanted in the prostate in a 45-minute outpatient procedure. The isotope
          decays over time and the seeds become inert. The seeds may be used as a
          primary
          treatment or, in conjunction with other treatment modalities such as external
          beam radiation therapy, chemotherapy, or as treatment for residual disease
          after
          excision of primary tumors.
  Management
          believes that the IsoRay 131 Cs
          seed
          represents  the
          first
          major advancement in brachytherapy technology in over 18 years with attributes
          that could make it the long term "seed of choice" for internal radiation
          procedures. The 131 Cs
          seed
          has FDA approval for treatment of malignant disease (e.g. cancers of the
          head
          and neck, brain, liver, lung, breast, prostate, etc.) and may be used in
          surface, interstitial, and intracavity applications for tumors with known
          radiosensitivity.
  The 131 Cs
          isotope has specific clinical advantages for treating cancer over Iodine-125
          (I-125 or 125 I)
          and
          Palladium-103 (Pd-103 or 103 Pd),
          the
          other isotopes commonly used in brachytherapy procedures. IsoRay Medical
          believes that the short half-life and higher dose rate characteristics
          of 131 Cs
          will
          expand industry applications and facilitate meaningful penetration into
          the
          treatment of other forms of cancer tumors such as breast cancer. The shorter
          half-life of 9.7 days for 131 Cs
          (versus 17.5 days for 103 Pd
          and 60
          days for 125 I)
          mitigates negative effects of long radiation periods on healthy tissue
          and is
          believed to reduce the duration of certain side effects. The higher initial
          dose
          rate is believed to be more effective on fast growing cancers by aggressively
          attacking cancer cells and disrupting cancer cell re-population cycles.
          The
          characteristics of 131 Cs  may
          result in the use of 10-30% fewer seeds per procedure thereby reducing
          the total
          physical radiation dose to the patient and reducing the costs of the procedure
          for both third party payors and the patient.
  IsoRay
          Medical's second product, Yttrium-90, is also a short-lived (half-life
          of 64
          hrs) radioisotope that is already used in the treatment of non-Hodgkin's
          lymphoma, leukemia, ovarian cancer, prostate cancer, osteosarcomas, and
          tumors
          of the breast, lung, kidney, colon and brain. These applications apply
          primarily
          to metastasized, or spread through the body, cancers. Currently more than
          20
          clinical trials using 90 Y
          are
          underway in the U.S. Yttrium-90 is also used at multiple treatment centers
          in
          Europe. Several members of the current IsoRay Medical team developed a
          process
          to produce high-purity 90 Y  for
          medical applications during the mid-1990s. Currently over 90 percent of
          the 90 Y  used
          in
          the U.S. is imported. IsoRay Medical's management believes there is an
          immediate
          market opportunity for a highly purified 90 Y.
   2
  
  IsoRay
          Medical and its predecessor companies have accomplished the following key
          milestones:
  ·
                Opened
                    a new manufacturing and production facility (October
                    2005);
  ·
                Deployed
                    a direct sales force to the market (July 2004 - July
                    2005);
  ·
                Developed
                    a treatment protocol for prostate cancer with a leading oncologist
                    (January 2005);
  ·
                Treated
                    the first patient (October 2004);
  ·
                Commenced
                    production of the131Cs
                    seed (August 2004);
  ·
                Filed
                    five additional patent applications for131Cs
                    and90Y
                    processes (November 2003 - August
                    2004);
  ·
                Obtained
                    a Nuclear Regulatory Commission Sealed Source and Device Registration
                    required by the Washington State Department of Health and the
                    FDA
                    (September 2004);
  ·
                Received
                    a Radioactive Materials License from the Washington State Department
                    of
                    Health (July 2004);
  ·
                Implemented
                    an ISO-9000 Quality Management System and production operating
                    procedures
                    (under continuing development);
  ·
                Signed
                    a Commercial Work for Others Agreement between Battelle (manager
                    of the
                    Pacific Northwest National Laboratory or PNNL) and IsoRay Medical,
                    allowing initial production of seeds through 2006****at
                    PNNL (April 2004);
  ·
                Raised
                    over $10.3 M in debt and equity funding (September 2003 - July
                    2005)
  ·
                Obtained
                    favorable Medicare reimbursement codes for the Cs-131 brachytherapy
                    seed
                    (November 2003);
  ·
                Obtained
                    FDA 510(k) approval to market the first product: the131Cs
                    brachytherapy seed (March 2003);
  ·
                Completed
                    initial radioactive seed production, design verification, computer
                    modeling of the radiation profile, and actual dosimetric data
                    compiled by
                    the National Institute of Standards and Technology and PNNL (October
                    2002); and
  ·
                Obtained
                    initial patent for131Cs
                    isotope separation and purification (May 2000).
  **Certain
          Defined Terms**
  The
          technical terms defined below are important to understand as they are used
          throughout this prospectus and particularly in this discussion of the business
          of IsoRay Medical. When used in this prospectus, unless the context requires
          otherwise:
  **"Brachytherapy"** refers
          to the process of placing therapeutic radiation sources in, or near, diseased
          tissue. Brachytherapy is derived from a Greek term meaning "short distance"
          therapy.
   3
  
  **"Cesium-131"** or **"** **131** **Cs"** is an
          isotope of the element Cesium that gives off low energy, "soft" x-rays
          as it
          decays. Cesium-131 decays to 50% of its original activity every 9.7 days,
          becoming essentially inert after 100 days.
  **"EBRT"** (external beam radiation therapy) is the external treatment of prostate
          cancer
          using an x-ray-like machine that targets a beam of radiation at the cancer
          site.
          The treatment damages genetic material within the cancer cells, which prevents
          the cells from growing and the affected cells eventually die. Treatments
          are
          generally performed at an outpatient center five days a week for seven
          or eight
          weeks.
  **"Half-life"** means
          the time required for a radioisotope to decay to one-half of its previous
          activity. The amount of radiation emitted thus decreases to 25% of original
          activity in two half-lives, 12.5% in three half-lives, and so on.
  **"Isotope"** refers
          to atoms of the same element that have different atomic masses. The word
          "isotope" means "same place," referring to the fact that isotopes of a
          given
          element have the same atomic number and hence occupy the same place in
          the
          Periodic Table of the Elements. Thus, they are very similar in their chemical
          behavior.
  **"** **131** **Cs
          seed"** is the
          name by which IsoRay Medical's first product, the Cesium-131-based brachytherapy
          seed, is currently known.
  **"Pure-beta
          particle emitter"** is a
          radioisotope whose only emissions during radioactive decay are beta particles
          (electrons). Beta particles can travel several millimeters in
          tissue.
  **"RP"** (radical
          prostatectomy or prostatectomy) is the complete surgical removal of the
          prostate, under significant anesthesia. Two main types of surgery have
          evolved:
          nerve-sparing and non nerve-sparing. The nerve-sparing surgery is designed
          to
          minimize damage to the nerves that control penile erection.
  **"Radiobiologic"** is
          characteristic of the effects of radiation on organisms or tissues, most
          commonly the effectiveness of therapeutic radiation in interrupting cell
          growth
          and replication.
  **"Radioisotope"** is a
          natural or man-made isotope of an element that spontaneously decays while
          emitting ionizing radiation.
  **"Seed"** is a
          common term for small radiation sources consisting of a radioisotope sealed
          within a biocompatible capsule such as gold or titanium, suitable for temporary
          or permanent brachytherapy implantation.
  **"Therapeutic
          radiation"** refers
          to
          ionizing radiation with sufficient energy to disrupt basic biological processes
          of cells.
  **"Yttrium-90"** or **“** **90** **Y”** is a
          radioisotope that emits high energy beta particles with a half-life of
          2.67
          days.
  **"Zirconium-90"** is a
          stable (non-radioactive) decay product of Yttrium-90.
  **Industry
          Information**
  *Incidence
          of Prostate Cancer*
  Excluding
          skin cancer, prostate cancer is the most common form of cancer, and the
          second
          leading cause of cancer deaths in men. The American Cancer Society estimated
          there will be about 232,090 new cases of prostate cancer diagnosed and
          an
          estimated 30,350 deaths associated with the disease in the United States
          during
          2005. Because of early detection techniques (e.g., screening for prostate
          specific antigen, or PSA) approximately 70% (162,400) of these cases are
          potentially treatable with seed brachytherapy, when the cancers are still
          locally confined within the prostate.
  The
          prostate is a walnut-sized gland surrounding the male urethra, located
          below the
          bladder and adjacent to the rectum. The two most prevalent prostate diseases
          are
          benign prostatic hyperplasia (BPH) and prostate cancer. BPH is a non-cancerous
          enlargement of the innermost part of the prostate. Prostate cancer is a
          malignant tumor that begins most often in the periphery of the gland and,
          like
          other forms of cancer, may spread beyond the prostate to other parts of
          the
          body.
   4
  
  Prostate
          cancer incidence and mortality increase with age. Prostate cancer is found
          most
          often in men who are over the age of 50. More than seven out of ten men
          diagnosed with prostate cancer are over the age of 65. According to the
          American
          Cancer Society, approximately one man in six will be diagnosed with prostate
          cancer during his lifetime, although only one man in thirty-three will
          die of
          this disease.
  In
          addition to age, other risk factors are linked to prostate cancer, such
          as
          genetics. Men who have relatives that have been affected, especially if
          the
          relatives were young at the time of diagnosis, have an even higher risk
          of
          contracting the disease. Researchers have discovered that changes in certain
          genes, influenced by DNA mutations inherited from a parent, may cause some
          men
          to be more inclined to develop prostate cancer. It has also been suggested
          that
          environmental factors such as exposure to cancer-causing chemicals or radiation
          may cause DNA mutations in many organs, but this theory has not been confirmed.
          Another factor that may contribute to prostate cancer is diet, with diets
          high
          in fat and high in calcium possibly increasing the risk of prostate cancer.
  The
          American Cancer Society recommends that men without symptoms, risk factors
          and
          who have a life expectancy of at least ten years, should begin regular
          annual
          medical exams at the age of 50, and believes that health care providers
          should
          offer as part of the exam the prostate-specific antigen (PSA) blood test
          and a
          digital rectal examination. The PSA blood test determines the amount of
          prostate
          specific antigen present in the blood. PSA is found in a protein secreted
          by the
          prostate, and elevated levels of PSA can be associated with either prostatitis
          (a noncancerous inflammatory condition) or a proliferation of cancer cells
          in
          the prostate. Transrectal ultrasound tests and biopsies are typically performed
          on patients with elevated PSA readings to confirm the existence of cancer.
  A
          tumor
          found by a prostate biopsy is usually assigned a grade by a pathologist.
          The
          most common prostate cancer grading system is called the Gleason grading
          system.
          A Gleason score, which ranges from 2 to 10, usually is used to estimate
          the
          tumor’s growth rate. Typically, the lower the score, the slower the cancer
          grows. Most localized cancers of the prostate gland are associated with
          an
          intermediate score ranging from Gleason scores 4 through 6.
  Staging
          is the process of determining how far the cancer has spread. The treatment
          and
          recovery outlook depend on the stage of the cancer. The TNM system is the
          staging process used most often. The TNM system describes the extent of
          the
          primary tumor (T stage), whether the cancer has spread to nearby lymph
          nodes (N
          stage), and the absence or presence of distant metastasis (M stage). The
          TNM
          descriptions can be grouped together with stages labeled 0 through IV (0-4).
          The
          higher the number, the further the cancer has spread. The following table
          summarizes the various stages of prostate cancer.
  Stages
                Characteristics
                    of prostate cancerT1
                    or T2
                Localized
                    in the prostateT3
                    or T4
                Locally
                    advancedN+
                    or M+
                Spread
                    to pelvic lymph nodes (N+)or distant organs
                    (M+)
 **
 *Treatment
          Options and Protocol*
  In
          addition to brachytherapy, localized prostate cancer is commonly treated
          with
          radical prostatectomy (RP) and external beam radiation therapy (EBRT).
          Recently,
          intensity modulated radiation therapy (IMRT) has seen increased application,
          particularly in combination with brachytherapy for cancers that have begun
          to
          spread beyond the prostate. Other treatments include cryosurgery, hormone
          therapy, watchful waiting, and finasteride, a drug commonly prescribed
          to treat
          benign enlargement of the prostate and male baldness. Some of these therapies
          may be combined in special cases to address a specific cancer stage or
          patient
          need. When the cancerous tissue is not completely eliminated, the cancer
          typically returns to the primary site, often with metastases to other areas.
  *Radical
          Prostatectomy.* Historically
          the most common treatment option for prostate cancer, radical prostatectomy
          is
          an invasive surgical procedure in which the entire prostate gland is removed.
          RP
          is performed under general anesthesia and typically involves a hospital
          stay of
          several days for patient observation and recovery. This procedure is often
          associated with relatively high rates of impotence and incontinence. For
          instance, a study published in the *Journal
          of the*  *American
          Medical Association* in
          January 2000 reported that approximately 60% of men who had received
          RP
          reported erectile dysfunction as a result of surgery. The same report found
          that
          approximately 40% of the patients studied reported at least occasional
          incontinence. New bilateral nerve-sparing techniques are currently being
          used
          more frequently in order to address these side effects, but these techniques
          require a high degree of surgical skill. RP is typically more expensive
          than
          other common treatment modalities.
   5
  
  *External
          Beam Radiation Therapy.* EBRT
          allows patients to receive treatment on an outpatient basis and at a lower
          cost
          than RP. EBRT involves directing a beam of radiation from outside the body
          at
          the prostate gland in order to destroy cancerous tissue. The course of
          treatment
          usually takes seven to eight weeks to deliver the total dose of radiation
          prescribed to kill the tumor. Studies have shown, however, that the ten-year
          disease free survival rates with treatment through EBRT are less than the
          disease free survival rates after RP or brachytherapy treatment. In addition,
          because the radiation beam travels through the body to reach the prostate,
          normal tissue lying in the path of the radiation beam is also damaged.
          Other
          side effects are associated with EBRT. For instance, rectal wall damage
          caused
          by the radiation beam is a noted negative side effect. Data suggests that
          between 30% and 40% of the patients who undergo EBRT suffer problems with
          erectile dysfunction after treatment.
  *Intensity
          Modulated Radiation Therapy.* IMRT
          is a
          newer, more advanced form of EBRT in which sophisticated computer control
          is
          used to aim the beam at the target volume from multiple different angles
          and to
          vary the intensity of the beam. Thus, damage to normal tissue and critical
          structures is minimized by distributing the unwanted radiation over a larger
          geometric area. The course of treatment is similar to EBRT and requires
          daily
          doses over a period of seven to eight weeks to deliver the total dose of
          radiation prescribed to kill the tumor. IMRT is relatively new and thus
          not
          widely available for use as a treatment modality. As a result fewer clinical
          data regarding treatment effectiveness and the incidence of side effects
          are
          available. One advantage of IMRT, and to some extent EBRT, is the ability
          to
          treat cancers that have begun to spread from the tumor site. An increasingly
          popular therapy for patients with more advanced prostate cancer is a combination
          of IMRT with seed implant brachytherapy (which until protocols are developed,
          does not include the Cesium-131 seed).
  *Cryosurgery.* Cryosurgery,
          a procedure in which tissue is frozen to destroy tumors, is another treatment
          option for prostate cancer. Currently, this procedure is less widely used,
          although promising treatment outcomes have been reported. Cryosurgery typically
          requires a one to two day hospital stay and is associated with higher rates
          of
          impotence and other side effects than brachytherapy.
  *Other
          Treatments.* Other
          treatments include hormone therapy and chemotherapy, which may be used
          to reduce
          the size of cancerous tumors. However, these treatments are not intended
          to
          ultimately cure a patient of prostate cancer. Instead, such treatment choices
          are made by physicians in an attempt to extend patients’ lives if the cancer has
          reached an advanced stage or as ancillary treatment methods used in conjunction
          with other treatment modalities. Common side effects of hormone therapy
          are
          impotence, decreased libido and development of breasts, and common side
          effects
          of chemotherapy are nausea, hair loss and fatigue.
  “Watchful
          waiting,” while not a treatment, is recommended by some physicians in extreme
          circumstances based on the severity and growth rate of the disease, as
          well as
          the age and life expectancy of the patient. Physicians and patients who
          choose
          watchful waiting are frequently seeking to avoid the negative side effects
          associated with RP or other treatment modalities. Through careful monitoring
          of
          PSA levels and close examination for advancing symptoms of prostate cancer,
          physicians may choose more active treatments at a later date.
  *Treatment
          Protocol.* Prostate
          cancer patients electing seed therapy first undergo an ultrasound test
          or CT
          scan, which generates a two-dimensional image of the prostate. With the
          assistance of a computer program, a three-dimensional treatment plan is
          created
          that calculates the number and placement of the seeds required for the
          best
          possible distribution of radiation to the prostate. Once the implant model
          has
          been constructed, the procedure is scheduled and the seeds are ordered.
          The
          number of seeds implanted normally ranges from 85 to 135, with the number
          of
          seeds varying with the size of the prostate. The procedure is usually performed
          under local anesthesia in an outpatient setting. The seeds are implanted
          using
          needles inserted into the prostate. When all seeds have been inserted,
          seed
          placement is verified through an ultrasound image, CT scan, fluoroscope
          or MRI.
          An experienced practitioner typically performs the procedure in
          approximately 45 minutes, with the patient normally returning home
          the same
          day. Most patients are able to return to their normal activities within
          one or
          two days following the procedure.
   6
  
  *Origin
          of Brachytherapy seeds*
  One
          of
          the first reports in the medical literature regarding brachytherapy seeds
          that
          deliver "soft x-ray" radiation directly to tumors by permanent implantation
          appeared in 1965, authored by Donald C. Lawrence and Dr. Ulrich K. Henschke.
          Don
          Lawrence later developed and patented the titanium-encapsulated 125 I
          brachytherapy seed. His company, Lawrence Soft Ray Inc., provided the world's
          supply of seeds from 1967 to 1978 until the 3M Corporation purchased the
          technology. Eventually 3M sold the business to Amersham PLC, which spun
          off this
          business to its division ONCURA ,
          today
          the market leader in Iodine-125 seeds. All commercially available seeds
          trace
          their origin to Mr. Lawrence's invention. Don Lawrence was a founder of
          IsoRay,
          LLC, the first predecessor company to IsoRay Medical.
  Brachytherapy
          has been used as a treatment for prostate cancer for more than 30 years.
          Formerly, seeds containing the radioactive isotope Iodine-125 were implanted
          in
          prostate tumors through open surgery. However, this technique fell into
          disfavor
          because the seeds were often haphazardly arranged resulting in radiation
          not
          reaching all of the targeted cancerous tissue. Compounding this was the
          fact
          that often an unintended radiation dose was delivered to healthy surrounding
          tissues, particularly the urethra and rectum. Originally, brachytherapy
          earned
          an unfavorable reputation because the early adopters did not have the imaging
          technologies needed for accurate placement of the seeds. This resulted
          in poor
          tumor control and greater damage to surrounding healthy tissue. Since the
          introduction of the ultrasound-guided, transperineal implantation technique
          in
          the late 1980’s, brachytherapy has become a treatment that not only provides
          excellent therapeutic value but is very convenient and economical for the
          patient. The benefits of the advancements in imaging, computer dose planning,
          and the actual implant procedure are borne by the improved clinical results
          achieved using modern brachytherapy techniques.
  The
          introduction of Palladium-103 in the mid-1980's represented a major technology
          advancement in brachytherapy and played a significant role in the dramatic
          increase in the number of brachytherapy procedures performed. Within a
          relatively short period of time, 103 Pd
          captured 40% of the growing brachytherapy market.
  Cesium-131  represents  the
          first
          major advancement in brachytherapy technology in over 18 years with attributes
          that management believes could make it the long term "seed of choice" for
          internal radiation procedures. Management believes that the 131 Cs
          seed has specific
          clinical advantages for
          treating cancer over 125 I
          and 103 Pd.
  There
          is
          a large and growing potential market for the Company's products. Several
          significant clinical and market factors are contributing to the increasing
          popularity of the brachytherapy procedure. In Europe brachytherapy is growing
          in
          excess of 20% per year and it is expected that market growth in the U.S.
          will
          also increase dramatically. In 1996 only 4% of prostate cancer cases were
          treated with brachytherapy, or about 8,000 procedures. In 2005, it is estimated
          that over 60,000 brachytherapy procedures will be performed for prostate
          cancer.
          Brachytherapy as a treatment is now more common than radical prostatectomy
          and
          has become the treatment of choice for early-stage prostate cancer. Considerable
          attention is now being given to high risk and faster growing prostrate
          cancers
          as well. Brachytherapy has significant advantages over competing treatments
          including lower cost, better survival data, fewer side effects, a faster
          recovery time and the convenience of a single outpatient procedure that
          generally lasts 45 minutes (Merrick, et al., *Techniques
          in Urology* ,
          Vol. 7,
          2001; Potters, et al., *Journal
          of Urology* ,
          May
          2005; Sharkey, et al., *Current
          Urology Reports* ,
          2002). ****
  *Clinical
          Results*
  Long
          term
          survival data are now available for brachytherapy with 103 Pd
          and 125 I,
          which
          support the efficacy of brachytherapy. Clinical data indicate that brachytherapy
          offers success rates for early-stage prostate cancer treatment that are
          better
          than those of RP or EBRT. While clinical studies of brachytherapy to date
          have
          focused on results from brachytherapy with Pd-103 and I-125, management
          believes
          that this data will be relevant for brachytherapy with Cs-131, and Cs-131
          may
          offer improved clinical outcomes over Pd-103 and I-125, given its shorter
          half-life and higher energy.
  *Improved
          patient outcomes.* A number
          of published studies on the use of 103 Pd
          and 125 I
          brachytherapy in the treatment of early-stage prostate cancer have been
          very
          positive.
   7
  
  ·
                A
                    twelve-year study published in the Volume 4, Issue 1 (2005) edition
                    of the
                    journal*Brachytherapy,*revealed
                    that high-risk prostate cancer patients treated with brachytherapy
                    using
                    Palladium-103 experienced greater success than patients treated
                    with
                    radical prostatectomy. The study was conducted by Dr. Jerrold
                    Sharkey of
                    the Urology Health Center in New Port Richey, Florida, et al.
                    and
                    retrospectively reviewed 1,707 prostate cancer patients, treated
                    from 1992
                    to 2004, 80% of whom were treated with brachytherapy and 20%
                    of whom were
                    treated with surgery. The study reported that high-risk patients
                    treated
                    with brachytherapy showed an 88% cure rate compared to
                    a 43% cure
                    rate obtained from surgery at 12 years. The results for intermediate-risk
                    patients reflected a success rate of 89% with seed therapy compared
                    to a
                    58% success rate with surgery at 12 years.
  ·
                A
                    twelve-year clinical study published in the 2004 Supplement of
                    the*International
                    Journal of Radiation Oncology, Biology and Physics*,
                    reported that the relative survival rate is 84% for low risk
                    cancer
                    patients, 78% for intermediate risk cancer patients and 68% for
                    high risk
                    cancer patients. The study was conducted by Dr. Lou Potters,
                    et al. of the
                    New York Prostate Institute and included 1,504 patients treated
                    with
                    brachytherapy between 1992 and 2000.
  ·
                A
                    study published in the January 2004 issue of the*International
                    Journal of Radiation Oncology, Biology and Physics*,
                    reported that brachytherapy, radical prostatectomy, high-dose
                    external
                    beam radiation therapy and combined therapies produced similar
                    cure rates.
                    The study was conducted by Dr. Patrick Kupelian, Dr. Louis Potters,
                    et al.
                    and included 2,991 patients with Stage T1 or T2 prostate cancer.
                    Of these
                    patients, 35% of patients underwent surgery, 16% received low-dose
                    EBRT,
                    10% received high-dose EBRT, 7% received combination therapy
                    and 32%
                    received brachytherapy. After five years, the biochemical relapse-free
                    survival rate was 83% for brachytherapy, 81% for radical prostatectomy,
                    81% for high-dose EBRT, 77% for combination therapy and 51% for
                    low-dose
                    EBRT.
  ·
                A
                    nine-year clinical study published in the March 2000 issue of
                    the*International
                    Journal of Radiation Oncology, Biology and Physics*,
                    reported that 83.5% of patients treated with the Pd-103 device
                    were
                    cancer-free at nine years. The study was conducted by Dr. John
                    Blasko of
                    the Seattle Prostate Institute and included 230 patients with
                    clinical
                    stage T1 and T2 prostate cancer. Only 3% experienced cancer recurrence
                    in
                    the prostate.
  ·
                Results
                    from a 10-year study conducted by Dr. Datolli and Dr. Wallner
                    published in
                    the*International
                    Journal of Radiation Oncology, Biology and Physics*in
                    September 2002, were presented at the October 2002 American Society
                    for
                    Therapeutic Radiology and Oncology (ASTRO) conference confirming
                    the
                    effectiveness of the Pd-103 seed in patients with aggressive
                    cancer who
                    previously were considered poor candidates for brachytherapy.
                    The 10-year
                    study was comprised of 175 patients with Stage T2-T3 prostate
                    cancer
                    treated from 1991 through 1995. Of these patients, 79 percent
                    remained
                    completely free of cancer without the use of hormonal therapy
                    or
                    chemotherapy.
  ·
                A
                    study by the Northwest Prostate Institute in Seattle, Washington
                    reported
                    79% disease-free survival at 12 years for brachytherapy in combination
                    with external beam radiation (Ragde,*et
                    al*.,*Cancer,*July 2000). The chance of cure from brachytherapy is nearly 50%
                    higher
                    than for other therapies for men with large cancers (PSA 10-20)
                    and over
                    twice as high as other therapies for men with the largest cancers
                    (PSA
                    20+) (K. Wallner,*Prostate
                    Cancer: A Non-Surgical Perspective,*Smart Medicine Press, 2000).
  The
          table
          below summarizes published results comparing survival rates 10 years after
          treatment for patients undergoing different types of treatment. Biochemical
          Disease-Free Survival is defined as the percentage of patients with normal
          prostate specific antigen or PSA after treatment and is the most rigorous
          definition of treatment success. Disease-Specific Survival is defined as
          the
          percentage of patients not dying from prostate cancer.
   8
  
  Comparative
          Survival and Disease-Free States
 ****
                  ****
                  ****
                  ******Treatment**
                  **Seed
                      Implants**
                  **External****Radiation**
                  **Prostatectomy**Disease-Free
                      Survival
                  64%
                      - 85%
                  59%
                      - 78%
                  65%Disease-Specific
                      Survival
                  98%
                      - 100%
                  75%
                      - 97%
                  84%
                      - 85%
 Source:
              Kaiser Brachytherapy Department, Roseville, CA
 *Reduced
          Incidence of Side Effects.* Because
          the IsoRay 131 Cs
          seed
          delivers a highly concentrated and confined dose of radiation directly
          to the
          prostate, healthy surrounding tissues and organs typically experience less
          radiation exposure. Management believes, and initial results appear to
          support,
          that this should result in lower incidence of side effects and complications
          than may be incurred with other conventional therapies, and when side effects
          do
          occur, they should resolve more rapidly than those experienced with I-125
          and
          Pd-103 isotopes.
  Sexual
          potency and urinary incontinence are two major concerns men face when choosing
          among various forms of treatment for prostate cancer. Kaiser patient education
          information lists the following data from clinical studies that monitored
          rates
          of impotence and incontinence.
  Comparative
          Rates of Potency and Incontinence
 **Treatment**
                  **Seed
                      implants**
                  **External**
                    **Radiation**
                  **Prostatectomy**
                    **(nerve
                      sparing)**
                  **Prostatectomy**
                    **(non
                      nerve-sparing)**Rate
                      of Impotence
                  10%
                      - 50%
                  40%
                      - 60%
                  14%
                      - 56%
                  65%
                      - 90%Urinary
                      Incontinence
                  1%
                  1%
                  Not
                      Reported
                  7%
                      - 8%
 Source:
              Kaiser Brachytherapy Department, Roseville, CA
 *Favorable
          Market Factors*
  *Lower
          Treatment Cost* .
          The
          total one-time cost of brachytherapy ranges from $13,000 to $17,000 per
          procedure. This is approximately two-thirds the cost of a radical prostatectomy
          or RP, which ranges from $19,000 to $25,000, excluding treatment for side
          effects and post-operative complications. Brachytherapy cost is comparable
          to
          the cost of EBRT (external beam radiation), which ranges from $13,000 up
          to
          $40,000 for a seven to nine week course of treatment.
  *Favorable
          Demographics* .
          Prostate cancer incidence and mortality increase with age. Prostate cancer
          is
          found most often in men who are over the age of 50. The National Cancer
          Institute has reported that the incidence of prostate cancer increases
          dramatically in men over the age of 55. Currently, one out of every six
          men is
          at lifetime risk of developing prostate cancer. More than seven out of
          ten men
          diagnosed with prostate cancer are over the age of 65. At the age of 70,
          the
          chance of having prostate cancer is 12 times greater than at age 50. According
          to the American Cancer Society, prostate cancer incidence rates increased
          between 1988 and 1992 due to earlier diagnosis in men who otherwise had
          no sign
          of symptoms. Early screening has fostered a decline in the prostate cancer
          death
          rate since 1990.
  The
          number of prostate cancer cases in the U.S. is expected to increase due
          to the
          expanding population of men over the age of 55. The U.S. Census Bureau
          estimates
          this segment of the population will increase from 25.9 million men in 2000
          to 32
          million men by 2008 - a 24% increase. Extrapolating that data, management
          believes that the U.S. will provide over 180,000 candidates annually for
          prostate brachytherapy by 2008.
  *Increased
          PSA Screening* .
          Early
          PSA screening and testing leads to early diagnosis. The American Cancer
          Society
          recommends that men without symptoms or risk factors and who have a life
          expectancy of at least ten years, should begin regular annual medical exams
          at
          the age of 50, and believes that health care providers should offer as
          part of
          the exam the prostate-specific antigen blood test. The PSA blood test determines
          the amount of prostate specific antigen present in the blood. PSA is found
          in a
          protein secreted by the prostate, and elevated levels of PSA can be associated
          with either prostatitis (a noncancerous inflammatory condition) or a
          proliferation of cancer cells in the prostate. Industry studies have shown
          that
          the PSA test can detect prostate cancer up to five years earlier than the
          digital rectal exam. Ultrasound tests and biopsies are typically performed
          on
          patients with elevated PSA readings to confirm the existence of cancer.
   9
   **Our
          Strategy**
  The
          key
          elements of IsoRay Medical's strategy include:
  ·
                *Continue
                    to introduce the IsoRay**131**Cs
                    seed into the U.S. brachytherapy market*.
                    Utilizing a direct sales organization and selected channel partners,
                    IsoRay Medical intends to capture a leadership position by expanding
                    overall use of the brachytherapy procedure for prostate cancer,
                    capturing
                    much of the incremental market growth and taking market share
                    from
                    existing competitors.
  ·
                *Create
                    a state-of-the-art manufacturing process*.
                    IsoRay Medical has constructed a state-of- the-art manufacturing
                    facility
                    in Richland, Washington in its newly leased facility, to implement
                    our
                    proprietary manufacturing process which is designed to improve
                    profit
                    margins and provide adequate manufacturing capacity to support
                    future
                    growth and ensure quality control. If Initiative 297 presents
                    a strategic
                    roadblock to the Company, IsoRay plans to construct a permanent
                    manufacturing facility in another state, Working with leading
                    scientists,
                    IsoRay Medical intends to design and create a proprietary separation
                    process to manufacture enriched barium, a key source material
                    for131Cs,
                    to ensure adequate supply and greater manufacturing efficiencies.
                    Also
                    planned is a value-added repackaging service to supply pre-loaded
                    needles,
                    stranded seeds and pre-loaded cartridges used in the implant
                    procedure.
                    IsoRay Medical plans to enter into a long-term program with a
                    leading
                    brachytherapy seed automation design and engineering company
                    to design and
                    build a highly automated manufacturing process to help ensure
                    consistent
                    quality and improve profitability.
  ·
                *Introduce
                    Cesium-131 therapies for other solid cancer tumors*.
                    IsoRay Medical intends to partner with other companies to develop
                    the
                    appropriate delivery technology and therapeutic delivery systems
                    for
                    treatment of other solid cancer tumors such as breast, lung,
                    liver,
                    pancreas, neck, and brain cancer. IsoRay Medical's management
                    believes
                    that the first major opportunities may be for the use of Cesium-131
                    in
                    adjunct therapy for the treatment of residual lung and breast
                    cancers.
  ·
                *Introduce
                    other isotope products to the U.S. market*.
                    IsoRay Medical plans to introduce its Yttrium-90 radioisotope
                    in 2006.
                    Currently, FDA approved90Y
                    manufactured by other suppliers is used in the treatment of non-Hodgkin's
                    lymphoma and is in clinical trials for other applications. Other
                    products
                    may be added in the future as they are developed. IsoRay Medical
                    has the
                    ability to make several different isotopes for multiple medical
                    and
                    industrial applications. During 2005 the Company has identified
                    and
                    prioritized additional market opportunities for these isotopes.
  ·
                *Support
                    clinical research and sustained product development*.
                    The Company plans to structureand
                    support clinical studies on the therapeutic benefits of Cs-131
                    for the
                    treatment of solid tumors and other patient benefits. We are
                    and will
                    continue to support clinical studies with several leading radiation
                    oncologists to clinically document patient outcomes, provide
                    support for
                    our product claims and compare the performance of our seeds to
                    competing
                    seeds. IsoRay Medical plans to sustain long-term growth by implementing
                    research and development programs with leading medical institutions
                    in the
                    U.S. to identify and develop other applications for IsoRay Medical's
                    core
                    radioisotope technology.
  Management
          believes there is a large and growing addressable market for IsoRay Medical's
          products. Several factors appear to contribute to the increasing popularity
          of
          the brachytherapy procedure. Long-term survival data are now available
          for
          brachytherapy (other than with respect to treatment from Cs-131 seeds).
          Brachytherapy has become the treatment of choice for not only early-stage
          prostate cancer but is now being considered for treatment of fast growing,
          aggressive tumors. Brachytherapy is now more common than surgery
          (prostatectomy). Brachytherapy has significant advantages over competing
          treatments including lower cost, better survival data, fewer side effects,
          a
          faster recovery time and the convenience of an outpatient procedure that
          generally lasts 45 minutes. Over 60,000 procedures were forecasted to occur
          in
          the U.S. in 2005. At the October 6, 2005 Cs-131 seed price of $55, this
          represents a potential $330 million seed market that is forecast to grow
          substantially by 2009 according to a recent market survey performed by
          Frost
& Sullivan, a nationally recognized market research firm. IsoRay Medical's
          management believes that the 131 Cs
          seed
          will add incremental growth to the existing brachytherapy seed market as
          physicians who are currently reluctant to recommend brachytherapy for their
          prostate patients due, in part, to side effects caused by longer-lived
          isotopes,
          become comfortable with the shorter half-life of 131 Cs,
          and
          the anticipated reduction of side effects.
   10
  
  **Products**
  IsoRay
          Medical markets the Cesium-131  seed
          and
          intends to market Yttrium-90 and other radioactive isotopes in the future.
          Additionally, it will attempt to create a market, primarily in clinical
          trials,
          for the liquid Cs-131 isotope, which is created in the production of IsoRay
          Medical's 131 Cs
          seed.
  *Cs-131
          Seed Product Description and Use in Cancer Treatment*
  Brachytherapy
          seeds are small devices that deliver therapeutic radiation directly to
          tumors.
          Each seed contains a radioisotope sealed within a welded titanium case.
          In
          prostate cancer procedures, approximately 85 to 135 seeds are permanently
          implanted in a 45 minute outpatient procedure. The isotope decays
          over
          time, and the seeds become inert. The seeds may be used as a primary treatment
          or in conjunction with other treatment modalities such as external beam
          radiation therapy, chemotherapy, or as treatment for residual disease after
          excision of primary tumors.
  Significant
          advantages of brachytherapy over competing treatments include: fewer side
          effects (the likelihood of impotence and incontinence is reduced when seeds
          are
          used to treat prostate cancer); short, convenient outpatient procedure
          (typically 45 minutes); faster recovery time (days vs. weeks); lower cost
          than
          other treatment modalities; higher cure rates for solid tumors; less pain;
          and
          overall considerably better quality of life.
  A
          diagram
          of the IsoRay seed appears in Figure 1. The
          seed
          contains an x-ray opaque marker surrounded by a ceramic substrate to which
          the
          isotope is chemically attached. The seed core is placed in a titanium tube
          and
          precision laser welded to form a hermetically sealed source of therapeutic
          radiation suitable for permanent implantation. The x-ray marker allows
          the
          physician to accurately determine seed placement within the tumor.
  
  *Figure
          1: Cross section of* *131* *Cs
          seed*
  *Competitive
          Advantages of Cs-131*
  131 Cs
          has specific
          clinical advantages for
          treating cancer over
          I-125 and Pd-103, the other isotopes currently used in brachytherapy seeds.
          The
          table below highlights the key differences of the three seeds. The Company
          believes that the short half-life, high-energy characteristics of 131 Cs
          will
          increase industry growth and facilitate meaningful penetration into the
          treatment of other forms of cancer such as breast cancer.
   11
  **Brachytherapy
          Isotope Comparison**
 **Cesium-131**
                  **Palladium-103**
                  **Iodine-125****Half
                      Life**
                  9.7
                      Days
                  17.5
                      days
                  60
                      days**Energy**
                  29
                      KeV
                  22
                      KeV
                  28
                      KeV**Dose
                      Delivery**
                  90%
                      in 33 days
                  90%
                      in 58 days
                  90%
                      in 204 days**Total
                      Dose**
                  100
                      Gy
                  125
                      Gy
                  145
                      Gy**Anisotropy
                      Factor*******
                  .969
                  .877
                      (TheraSeed® 2000)
                  .930
                      (OncoSeed® 6711)
 * Degree
              of
              symmetry of therapeutic dose, a factor of 1.00 indicates symmetry. ****
 *Shorter
          half-life* . ** The
          Company believes that Cesium-131's shorter half-life of 9.7 days will prove
          to
          have greater biological effectiveness, will mitigate the negative effects
          of
          long radiation periods on healthy tissue and will reduce the duration of
          any
          side effects. A shorter half-life produces more intense therapeutic radiation
          over a shorter period of time and may reduce the potential for cancer cell
          survival and tumor recurrence. Radiobiological studies indicate that
          shorter-lived isotopes are more effective against faster growing tumors
          (Dicker,
          et. al., *Semin.
          Urol. Onc.* 18:2,
          May 2000). Other researchers conclude that "half-lives in the approximate
          range
          4-17 days are likely to be significantly better for a wide range of tumor
          types
          for which the radiobiologic characteristics may not be precisely known
          in
          advance." (Armpilia CI, et. al., *Int.
          J. Rad. Oncol. Biol. Phys.* 55:2,
          February 2003).
  *High
          energy* .
          The
          Cs-131 isotope decay energy of 29 KeV (versus 22 KeV for Pd-103 and 28
          KeV for
          I-125) generates a therapeutic radiation field that extends beyond the
          current
          dosimetry reference point of 1 cm. Pd-103 seeds emit radiation that does
          not
          penetrate as far in tissue (up to 40% lower than Cs-131). To compensate
          for this
          more Pd-103 seeds are required to attain the equivalent dose as if Cs-131
          seeds
          were used. This increase in the number of seeds implanted increases the
          time and
          cost required to perform Pd-103-based procedures. The lower
          energy from 103 Pd
          seeds
          may also result in greater non-uniformity of the implant dose as dose rates
          near
          the surface of each seed must be higher to compensate for lower doses at
          greater
          distances from each seed.
  *Reduced
          side effects*.**Because the IsoRay 131Cs seed device
          delivers a highly concentrated and confined dose of radiation directly
          to the
          prostate, healthy surrounding tissues and organs are exposed to less radiation
          than with other treatments. This should result in fewer and less severe
          side
          effects and complications than may be incurred with other conventional
          therapies.
  *Shape of radiation
                    field*.**The
                    shape of the radiation field generated by a131Cs
                    seed is uniform, and this uniformity may result in better radiation
                    dose
                    coverage and improved therapeutic effectiveness. The adjacent
                    picture is
                    an autoradiograph (film exposed by radiation from the seed itself)
                    of an
                    IsoRay seed, which shows this uniformity of the radiation field
                    that is
                    expected to result in better radiation dose coverage. IsoRay
                    Medical has
                    conducted extensive computer modeling and testing of the seed
                    design. The
                    IsoRay seed has passed all Nuclear Regulatory Commission ("NRC")
                    requirements for sealed radioactive sources. Dose uniformity
                    was tested
                    and the results compared well to those predicted by industry
                    standard
                    computer modeling techniques. In the third quarter of 2002, seeds
                    were
                    sent to the National Institute for Standards and Technology for
                    calibration, and have undergone dosimetry testing according to
                    American
                    Association of Physicists in Medicine ("AAPM") protocols. The
                    results
                    of these tests were compiled in IsoRay Medical's 510(k)
                    submission to
                    the FDA and were subsequently published in the June 2004 issue
                    of
                    *Medical Physics*. The results of these tests showed superior dose
                    characteristics relative to the leading I-125 and Pd-103 seeds.*Figure
                      2. Cs-131 seed
                      Autoradiograph*
  *Reduced
          costs* .
          The
          characteristics of 131 Cs
          seeds
          described above may result in the use of 10%-30% less seeds per procedure,
          compared to other isotopes, thereby reducing the total physical radiation
          dose
          to the patient and reducing the costs of the procedure for the third party
          payors and the patient.
  *Yttrium-90*
  Y-90
          and
          Cs-131 are short-lived isotopes that are well suited to treatment of tumors
          by
          cell-directed therapy. The Company plans to introduce its second product,
          Yttrium-90, in 2006. Y-90 is already available from other companies. When
          used
          in combination with molecular targeting agents, Y-90 is proving to be an
          ideal
          isotope to provide localized radiation therapy for various types of cancer,
          such
          as non-Hodgkin's lymphoma, leukemia, ovarian and prostate cancers,
          osteosarcomas, and tumors of the breast, lung, kidney, colon, and brain.
          Y-90's
          properties of short half-life, high specific activity, high energy and
          pure
          beta-emissions can be chemically attached to targeting agents that are
          highly
          selective for specific tumors. These targeting agents may include monoclonal
          antibodies, molecules derived from antibodies, peptides, or other tumor-specific
          molecules. Most Y-90 currently used in the U.S. is imported with varying
          degrees
          of quality. IsoRay Medical has developed a proprietary separation process
          that
          produces Y-90 that management believes will meet or exceed the purity and
          quality required for clinical trials and medical applications.
  
 12
 
 
  Y-90
          is a
          significant component of several commercially available products. These
          products
          use radiopharmaceutical grade Y-90 derived using manufacturing methods
          and
          techniques that conform to current cGMP (current Good Manufacturing Practices),
          allowing them to be used invasively in commercially available healthcare
          products.
  We
          will
          initially target the clinical trial market. Currently there are several
          clinical
          trials and medical applications involving Y-90 underway around the world
          that
          represent a potential market for Y-90. These customers hold significant
          growth
          potential, as products undergoing successful trials become approved for
          general
          use. Our strategy will be to attempt to develop exclusive sales arrangements
          with companies that are close to FDA approval or foreign companies authorized
          to
          commercially sell their products in various overseas markets.
  Y-90
          is a
          pure-beta particle emitter with a physical half-life of 64.1 hours (2.7
          days)
          that decays to stable Zirconium-90. The average energy of the beta emissions
          from Y-90 is 2.37 MeV, with an effective path-length in tissue of 5.3 mm.
          This
          means that 90% of the energy is absorbed within a 5.3-mm radius.
  Y-90
          is
          manufactured by chemical separation from a long-lived Strontium-90 (Sr-90)
          generator stock. We intend to purchase or lease the Sr-90 feedstock from
          the
          U.S. DOE and international suppliers. Due to the radiological characteristics
          of
          Sr-90, initial processing will occur under stringent radiological controls
          in a
          highly shielded isolator or "hot cell" using remote manipulators. Following
          preliminary separation, the Y-90 may be further purified and converted
          to
          pharmaceutical grade material in a shielded environmentally-controlled
          glove
          box. After completing the separation process every two weeks (e.g., collecting
          or "milking" the therapeutic Y-90), the residual Sr-90 generator is recycled
          for
          subsequent separations. In theory, the Sr-90 generator can continue to
          generate
          Y-90 for decades. However, the process periodically requires infusion of
          new
          Sr-90. In addition to acquiring Sr-90, we will need to acquire equipment
          and
          develop manufacturing procedures for the Y-90 isotope that meet cGMP criteria.
          While we initially plan to produce solely radiochemical purity Y-90, which
          does
          not need to meet the more stringent manufacturing standards required for
          radiopharmaceutical purity Y-90, we intend to develop our manufacturing
          methods
          to this higher level and produce radiopharmaceutical purity Y-90 in the
          future.
  IsoRay
          Medical has identified four principal suppliers of Y-90: MDS Nordion (a
          division
          of MDS, Inc.), Perkin-Elmer, Inc., Amersham (part of General Electric Company)
          and Iso-Tex Diagnostics, Inc. If we begin marketing Y-90, these companies
          will
          be our principal competitors within this market.
  **Cs-131
          Manufacturing Process**
  Cs-131
          is
          a radioactive isotope that can be produced by the neutron bombardment of
          Barium-130. When Ba-130 is put into a nuclear reactor it becomes Ba-131,
          the
          radioactive material that is the parent of Cs-131. The process includes
          the
          following:
  ·
                *Isotope
                    Generation*.****The
                    radioactive isotope Cs-131 is normally produced by placing a
                    quantity of
                    stable non-radioactive barium (ideally pure Ba-130) into the
                    neutron flux
                    of a nuclear reactor. The irradiation process converts a small
                    fraction of
                    this material into a radioactive form of barium (Ba-131). The
                    Ba-131
                    decays by electron capture to the radioactive isotope of interest
                    (Cs-131). IsoRay Medical has evaluated several international
                    nuclear
                    reactors and a few potential facilities in the United States.
                    Due to the
                    short half-life of both the Ba-131 and Cs-131 isotopes, these
                    facilities
                    must be capable of removing irradiated materials from the reactor
                    core on
                    a routine (e.g. weekly) basis. Reactor personnel will ship the
                    irradiated
                    barium on a pre-determined schedule to our facilities for subsequent
                    separation, purification and seed assembly. The Company has identified
                    more than five reactors in the U.S., Europe and the former Soviet
                    Union
                    that are capable of meeting these requirements. This routine
                    isotope
                    generation cycle at supplier reactors will allow significant
                    quantities of
                    Ba-131 to be on hand at our facilities for the completion of
                    the rest of
                    the manufacturing process. To ensure reliability of supply, we
                    intend to
                    seek agreements with multiple facilities to produce Ba-131. As
                    of the date
                    of this report, IsoRay Medical has agreements in place with more
                    than one
                    supplier of irradiated Ba-131. In addition, the Company is engaged
                    in the
                    development of a barium enrichment device that, if successful,
                    should
                    reduce the cost of producing Cs-131 while maintaining the purity
                    and
                    consistency required in the end product.****
  
 13
 
 
  ·
                *Isotope
                    Separation and Purification*.****Upon
                    irradiation of the barium feedstock, the Ba-131 begins decaying
                    to Cs-131.
                    At pre-determined intervals the Cs-131 produced is separated
                    from the
                    barium feedstock and purified using a proprietary radiochemical
                    separations process (patent applied for). Due to the high-energy
                    decay of
                    Ba-131, this process is performed under stringent radiological
                    controls in
                    a highly shielded isolator or "hot cell" using remote manipulators.
                    After
                    separating Cs-131 from the energetic Ba-131, subsequent seed
                    processing
                    may be performed in locally shielded fume hoods or glove boxes.
                    If
                    enriched barium feedstock is used, the residual barium remaining
                    after
                    subsequent Cs-131 separation cycles (“milkings”) will be recycled back to
                    the reactor facility for re-irradiation. This material will be
                    recycled as
                    many times as economically feasible, which should make the process
                    more
                    cost effective. As an alternative to performing the Cs-131 separation
                    in
                    our own facilities, IsoRay may enter into agreements with other
                    entities
                    to supply “raw” Cs-131 by performing the initial barium/cesium separation
                    at their facilities, followed by final purification at IsoRay’s facility.
  ·
                *Internal
                    Seed Core Technology*.****The
                    purified Cs-131 isotope will be incorporated into an internal
                    assembly
                    that contains a binder, spacer and X-ray marker. This internal
                    core
                    assembly is subsequently inserted into a titanium case. The dimensional
                    tolerance for each material is extremely important. Several carrier
                    materials and placement methods have been evaluated, and through
                    a process
                    of elimination, we have developed favored materials and methods
                    during our
                    laboratory testing. The equipment necessary to produce the internal
                    core
                    includes accurate cutting and gauging devices, isotope incorporation
                    vessels, reaction condition stabilization and monitoring systems,
                    and
                    tools for placing the core into the titanium tubing prior to
                    seed
                    welding*.*
  ·
                *Seed
                    Welding.*******Following
                    production of the internal core and placement into the titanium
                    capsule, a
                    seed is hermetically sealed to produce a sealed radioactive source
                    and
                    biocompatible medical device. This manufacturing technology requires:
                    accurate placement of seed components with respect to the welding
                    head,
                    accurate control of welding parameters to ensure uniform temperature
                    and
                    depth control of the weld, quality control assessment of the
                    weld
                    integrity, and removal of the finished product for downstream
                    processing
                    or rejection of unacceptable materials to waste. Inspection systems
                    will
                    be capable of identifying and classifying these variations for
                    quality
                    control ensuring a minimal amount of material is wasted. Finally,
                    the
                    rapid placement and removal of components from the welding zone
                    will
                    affect overall product throughput.
  ·
                *Quality
                    Control*.****We
                    have established procedures and controls to meet all FDA and
                    ISO 9001:2000
                    Quality Standards. Product quality and reliability will be secured
                    by
                    utilizing multiple sources of irradiation services, feedstock
                    material,
                    and other seed manufacturing components. An intensive production
                    line
                    preventive maintenance and spare parts program will be implemented.
                    Also,
                    an ongoing training program will be established for customer
                    service to
                    ensure that all regulatory requirements for the FDA, DOT and
                    applicable
                    nuclear radiation and health authorities are fulfilled.
  The
          Company intends to implement a just-in-time production capability that
          is keenly
          responsive to customer input and orders to ensure that individual customers
          receive a higher level of customer service from us than from existing seed
          suppliers who have the luxury of longer lead times due to longer half-life
          products. Time from order to completion of product manufacture can be reduced
          to
          three to five days, including receipt of irradiated barium (from a supplier's
          reactor), separation of Cs-131 (at our facilities), isotope labeling of
          the
          core, and loading of cores into pre-welded titanium "cans" for final welding,
          testing, quality assurance and shipping.
  
 14
 
 
  *Automated
          Manufacturing Process*
  IsoRay
          Medical has begun discussions with a leading designer and manufacturer
          of
          automated seed manufacturing equipment that developed an automated line
          in the
          US for manufacturing Iodine-125 that was sold to a competitor in early
          2003. In
          addition, IsoRay Medical is engaged in preliminary discussions with another
          seed
          manufacturer regarding obtaining an existing automated production line.
          An
          automated production line may benefit IsoRay because of potentially reduced
          labor costs, and help ensure consistent manufacturing quality.
  *Manufacturing
          Facility*
  The
          initial production of the IsoRay Cs-131 brachytherapy seed commenced at
          PNNL in
          2004. IsoRay Medical has signed a lease agreement and completed construction
          (tenant improvements) of a new interim production facility in Richland,
          Washington that received final regulatory approval on October 6,
          2005 and
          will begin radioactive production operations shortly thereafter. The Company
          is
          also considering another state as a location for a future facility, either
          as
          the Company's sole manufacturing facility or as a secondary facility. No
          agreements have been reached for any possible facilities outside of
          Washington.
  *Repackaging
          Services*
  Most
          brachytherapy manufacturers offer their seed product to the end user packaged
          in
          four principal packing configurations provided in a sterile or non-sterile
          package depending on the customer's preference. These include:
  ·
                *Loose
                    seeds*
  ·
                *Pre-loaded
                    needles*(loaded with 3 to 5 seeds and
                    spacers)
  ·
                *Strands
                    of seeds*(consists of seeds and spacers in a biocompatible "shrink wrap")
  ·
                *Pre-loaded
                    Mick cartridges*(fits the Mick applicator - seed manufacturers usually load and
                    sterilize
                    Mick cartridges in their own manufacturing
                    facilities)
  No
          single
          package configuration dominates the market at this point. Market share
          estimates
          for each of the four packaging types are: loose seeds (20% - 30%) Mick
          cartridges (25% - 35%), pre-loaded needles (40% - 55%) and strands (10%
          - 20%).
          Market trends indicate some movement to the recently introduced stranded
          configuration, as there are some clinical data suggesting less potential
          for
          post-implant seed migration when a stranded configuration is used.
  The
          role
          of the repackaging service is to package, assay and certify the contents
          of the
          final product configuration shipped to the customer. A commonly used method
          of
          providing this service is through independent radiopharmacies such as Anazao
          Healthcare and Advanced Care Pharmacy. Manufacturers send loose seeds along
          with
          the physician's instructions to the radiopharmacy who, in turn, loads needles
          and/or strands the seeds according to the doctor's instructions. These
          pharmacies then sterilize the product and certify the final packaging prior
          to
          shipping directly to the end user.
  IsoRay
          Medical has held discussions with the major independent radiopharmacies
          and
          determined the shortest achievable turnaround time from delivery of loose
          seeds
          to the radiopharmacy to delivery of the final assayed and packaged seeds
          to the
          end user is 3 - 4 days. Because of the short half-life of Cs-131, management
          believes adding 3 - 4 days to the product delivery schedule is prohibitive
          on a
          long-term basis. However, to increase sales in the near-term we are using
          one of
          these services on an interim basis until our own custom preloading operation
          comes on-line late in 2005. The Company intends to market its seeds to
          the end
          user in all four of the commonly used packaging configurations, and has
          retained
          an experienced consultant to assist in the development of this value-added
          repacking service.
  Prior
          to
          the establishment of a custom preloading service, IsoRay
          Medical is
          offering loose seeds which will require the implant center to load the
          seeds
          into their preferred implant configuration. IsoRay is currently loading
          Mick
          cartridges in its new facility for those implant centers using the Mick
          applicator as their method of injecting the seeds into the prostate. The
          Company
          currently offers non-sterile, pre-loaded Mick cartridges. As soon as the
          Company
          acquires the proper sterilization equipment, loose seeds and pre-loaded
          Mick
          cartridges will be offered in a sterile package. When the custom
          preloading service is operational, the Company will add pre-loaded
          needles
          and strands in sterile and non-sterile package configurations. Management
          believes the custom preloading service will be operational
          by the end
          of 2005.
  
 15
 
 
  Independent
          radiopharmacies usually provide the final packaging of the product delivered
          to
          the end user. This negates an opportunity for reinforcing the "branding"
          of the
          seed product. By providing its own repackaging service, the Company preserves
          the product branding opportunity and eliminates any concerns related to
          the
          handling of its product by a third party prior to delivery to the end
          user.
  Providing
          different packaging configurations adds significant value to the product
          while
          providing an additional revenue stream and incremental margins to the Company
          through the pricing premiums that can be charged. The end users of these
          packaging options are willing to pay a premium because of the savings realized
          by eliminating the need for loose seed handling and loading capabilities
          on
          site, eliminating the need for additional staffing to load and sterilize
          seeds
          and needles, and eliminating the expense of additional assaying of the
          seeds.
  Management
          estimates the cost of establishing a custom preloading service in its new,
          leased facility to be approximately $250,000. Space for this custom preloading
          operation has been reserved in the facility and most of the necessary equipment
          has been delivered and installed. Preloading procedures have been drafted,
          staff
          are being trained, and process validation activities are scheduled for
          the
          4 th quarter
          of 2005. One or more technicians will be added to the staff to handle the
          seed
          loading, stranding and assaying operations. Our customer service staff
          will
          provide assistance with shipping, documentation and tracking of all orders
          from
          the repackaging service to the end user.
  *Barium
          Enrichment Device*
  Barium-130
          is the original source material for Cs-131. When Ba-130 is put into a nuclear
          reactor it becomes Ba-131, the radioactive material that is the parent
          of
          Cs-131. Barium metal found in nature contains only 0.1% of Ba-130 with
          six other
          isotopes making up the other 99.9%. As part of its manufacturing process
          the
          Company intends to develop a barium enrichment device that should create
          "enriched barium" with a higher concentration of the Ba-130 isotope than
          is
          found in naturally occurring barium. In addition to creating a higher purity
          Ba-130, which translates into higher purity Cs-131, a barium enrichment
          device
          will result in higher yields of Cs-131. The Company has identified sources
          of
          enriched barium, including in the former Soviet Union, that we believe
          we can
          use until the barium enrichment device is developed. ****
  **Marketing
          and Sales**
  *Marketing
          Strategy*
  The
          Company intends to position Cs-131 as the isotope of choice based on its
          preliminary findings of the clinical advantages over Iodine and Palladium.
          Management believes there is no apparent clinical reason to use Palladium-103
          or
          Iodine-125 when Cesium-131 is available. The advantages associated with
          a high
          energy and short half-life isotope are generally accepted within the clinical
          community and the Company intends to help educate potential patients about
          the
          clinical benefits a patient would experience from the use of Cs-131 for
          his
          brachytherapy seed treatment. The potential negative effects of the prolonged
          radiation times associated with the long half-life of Iodine-125 make this
          isotope less attractive than Cesium-131.
  We
          intend
          to target these competing isotopes as our principal competition rather
          than the
          various manufacturers and distributors of these products. In this way,
          the
          choice of brachytherapy isotopes will be less dependent on the name and
          distribution strengths of the various Iodine and Palladium manufacturers
          and
          distributors and more dependent on the therapeutic benefits of Cs-131.
          The
          Company will focus the purchasing decision on the advantages and functionality
          of the Cs-131 isotope while seeking to educate the prostate cancer patient
          about
          these clinical benefits.
  The
          professional and patient market segments each play a unique and important
          role
          in the ultimate choice of prostate cancer treatment and the specific isotope
          chosen for seed brachytherapy treatment. The Company will tailor its marketing
          message to each audience. IsoRay Medical has retained an advertising agency
          in
          the Seattle area to assist with its marketing communication program. The
          agency
          will coordinate the creation and distribution of all advertising material
          and
          work with the print and visual media.
  
 16
 
 
  The
          advantages of Cs-131's unique combination of high energy and short half-life
          will be heavily promoted within the clinical market. Because we believe
          there is
          no apparent clinical reason to choose Palladium over Cesium, we have and
          will
          continue to target those high volume users of Palladium as our first implant
          sites. We will also emphasize the prolonged radiation times and the high
          doses
          of radiation given to the patient by the Iodine isotope and the possible
          negative effects of this prolonged radiation to the adjacent healthy tissues.
          We
          believe that this is an important marketing message because clinicians
          generally
          agree the radiation given by Iodine has little or no clinical benefit after
          120
          to 150 days.
  To
          promote our products to the clinical and professional audience, we will
          use a
          combination of marketing messages to appear in print and visual media.
          Planned
          marketing activities include: attendance at the major brachytherapy-related
          clinical conferences to exhibit our products and provide marketing information
          for annual meetings, conferences and other forums of the various professional
          societies; print advertising in brachytherapy clinical journals; and promoting
          clinical presentations by experts in the field at major
          conferences.
  In
          today's U.S. health care market patients are more informed and involved
          in the
          management of their health and any treatments required. Many physicians
          relate
          incidents of their patients coming for consultations armed with articles
          researched on the Internet and other sources describing new treatments
          and
          medications. In many cases, these patients are demanding a certain therapy
          or
          drug and the physicians are complying when medically appropriate.
  Because
          of this market factor, we will also promote our products directly to the
          general
          population. The audience targeted will be the prostate cancer patient,
          his
          spouse, family and care givers. The marketing message to this segment of
          the
          market will emphasize the specific advantages of Cs-131, including fewer
          side
          effects, less total radiation, and shorter period of radiation. The Company
          plans to reach this market through its website, located at www.isoray.com ,
          advertising in magazines read by prostate cancer patients and their care
          givers,
          and through patient advocacy efforts.
  Another
          key element of our strategy will be to validate and support all product
          claims
          with well-designed and executed clinical studies that support the efficacy
          and
          positive patient outcomes of our Cs-131 seed. We intend to sponsor
          physician-directed studies that will compare the performance of our seeds
          to
          Pd-103 and I-125 seeds. During the remainder of 2005 and into 2006, IsoRay
          Medical plans to continue its collaboration with leading physicians to
          develop
          clinical data on the efficacy of Cs-131 seeds. Noted contributors from
          the
          medical physics community will be consulted regarding the benefits of
          brachytherapy using shorter half-life, improved dosimetry, and higher decay
          energy seeds. Articles will be submitted to professional journals such
          as *Medical
          Physics* and the *International
          Journal of Radiation*  *Oncology,
          Biology, and Physics* .
  *Sales
          and Distribution*
  According
          to a recent industry survey, approximately 2,000 hospitals and free standing
          clinics are currently offering radiation oncology services in the United
          States.
          Not all of these facilities offer seed brachytherapy services. These
          institutions are staffed with radiation oncologists and medical physicists
          who
          provide expertise in radiation therapy treatments and serve as consultants
          for
          urologists and prostate cancer patients. We will target the radiation
          oncologists and the medical physicists as well as urologists as key clinical
          decision makers in the type of radiation therapy offered to prostate cancer
          patients.
  IsoRay
          Medical has started to build a direct sales organization to introduce Cs-131
          to
          radiation oncologists and medical physicists. In August 2004 IsoRay Medical
          hired two highly successful sales professionals from the brachytherapy
          industry
          that bring well established relationships with key radiation oncologists
          and
          medical physicists, and in 2005, IsoRay Medical expanded its sales force
          to four
          experienced individuals. By hiring experienced and successful brachytherapy
          sales people, the Company reduces the risk of delay in penetrating the
          market
          due to a lack of knowledge of the industry or unfamiliarity with the key
          members
          of the brachytherapy community.
  The
          initial response to our new isotope from prominent radiation oncologists,
          medical physicists and urologists in the US has been very positive. The
          Company
          has now supplied the 131 Cs
          seed
          to thirteen well-known implant centers strategically located throughout
          the U.S.
          Implant centers are currently located in the states of Arizona, California,
          Illinois, Pennsylvania, Tennessee, New York, Texas, Washington and Wisconsin,
          which have implanted our seed into 75 patients as of October 6, 2005. As
          production increases, additional centers will be added. Clinical results
          from
          the patients implanted through October 6, 2005, while perhaps not a large
          enough
          group to draw statistically significant conclusions, have been consistent
          with
          the reduced side effects expected from the shorter half-life of Cs-131.
  
 17
 
 
  The
          Company will expand its U.S. sales force as it increases production capacity
          and
          expands the customer base. If the Company expands outside the U.S. market,
          it
          plans to use established distributors in the key markets in these other
          countries. This strategy should reduce the time and expense required to
          identify, train and penetrate the key implant centers and establish
          relationships with the key opinion leaders in these markets. Using established
          distributors also should reduce the time spent acquiring the proper radiation
          handling licenses and other regulatory requirements of these
          markets.
  *Pricing*
  Payment
          for IsoRay Medical products comes from third-party payors including
          Medicare/Medicaid and private insurance groups. These payors reimburse
          the
          hospitals and clinics via well-established payment procedures. On October
          31,
          2003, as a result of IsoRay Medical's predecessor's filing for an Additional
          Device Category, CMS (Centers for Medicare and Medicaid Services) approved
          a
          HCPCS/CPT code for Cs-131 brachytherapy seeds of $44.67 per seed. This
          is the
          same price as awarded to Pd-103 seeds, and compares favorably to the $37.34
          price granted to I-125 seeds. Medicare is the most significant U.S. payor
          for
          prostate brachytherapy services, and is the payor in close to 70% of all
          U.S.
          prostate brachytherapy cases. CMS will have the right to adjust this pricing
          in
          January 2006 for the calendar years 2007 and 2008.
  Prostate
          brachytherapy is typically performed in the outpatient setting, and as
          such, is
          covered by the CMS Outpatient Prospective Payment System. In January 2004,
          brachytherapy procedure prices were unbundled by CMS, allowing itemized
          invoicing for seeds with no limit on the number of seeds used per procedure,
          and
          CMS currently reimburses hospitals and clinics for their seed purchases
          on a
          cost basis. Other insurance companies have followed these CMS changes.
          With the
          new reimbursement structure and industry consolidation, prices of brachytherapy
          seeds are expected to stabilize and increase over the next few years.
  Pricing
          premiums for pre-loaded needles, strands and pre-loaded Mick cartridges
          will be
          added as these packaging alternatives are offered to our customers. When
          charges
          for the seeds are correctly submitted in the appropriate format to CMS,
          100% of
          the total cost of the seeds is reimbursed to the hospital or clinic by
          CMS.
  **Other
          Information**
  *Proprietary
          Rights*
  The
          Company relies on a combination of patent, copyright and trademark laws,
          trade
          secrets, software security measures, license agreements and nondisclosure
          agreements to protect its proprietary rights. Some of the Company's proprietary
          information may not be patentable.
  The
          Company intends to vigorously defend its proprietary technologies, trademarks,
          and trade secrets. Members of management, employees, and certain equity
          holders
          have previously signed non-disclosure, non-compete agreements, and future
          employees, consultants, advisors, with whom the Company engages, and who
          are
          privy to this information, will be required to do the same. A patent for
          the
          Cesium separation and purification process has been granted on May 23,
          2000 by
          the U.S. Patent and Trademark Office (USPTO) under Patent Number 6,066,302,
          with
          an expiration date of May 23, 2020. The process was developed by Lane Bray,
          a
          shareholder of the Company, and has been assigned exclusively to IsoRay
          Medical.
          IsoRay's predecessor also filed for patent protection in four European
          countries
          under the Patent Cooperation Treaty. Those patents have been assigned to
          IsoRay
          Medical.
  
 18
 
 
  Our
          management believes that certain aspects of the IsoRay seed design and
          construction techniques are patentable innovations. These innovations have
          been
          documented in IsoRay laboratory records, and a patent application was filed
          with
          the USPTO on November 12, 2003. Certain methodologies regarding isotope
          production, separation, and seed manufacture are retained as trade secrets
          and
          are embodied in IsoRay Medical's procedures and documentation. In June
          and July
          of 2004, three patent applications were filed relating to methods of deriving
          Cs-131 and Y-90 developed by IsoRay Medical employees. The Company is currently
          working on developing and patenting additional methods of deriving Cs-131
          and
          Y-90, and other isotopes.
  There
          are
          specific conditions attached to the assignment of the Cs-131 patent from
          Lane
          Bray. In particular, the associated Royalty Agreement provides for 1% of
          gross
          profit payment from seed sales (gross seed sales price minus direct production
          cost) to Lane Bray and 1% of gross profit from any use of the Cs-131 process
          patent for non-seed products. If IsoRay Medical reassigns the Royalty Agreement
          to another company, these royalties increase to 2%. The Royalty Agreement
          has an
          anti-shelving clause which requires IsoRay Medical to return the patent
          if
          IsoRay Medical permanently abandons sales of products using the invention.
          Additionally, when IsoRay Medical attains a 15% domestic market share,
          it will
          pay to the Lawrence Family Trust, a major shareholder of the Company, 1%
          of the
          "Factory Price" with a minimum annual royalty of $4,000, pursuant to an
          agreement with Don Lawrence.
  *Research
          And Development*
  From
          inception (December 17, 2001) through June 30, 2005, IsoRay Medical and
          its
          predecessor companies incurred more than $1.8 million in costs related
          to
          research and development activities. The Company expects to continue to
          have
          employees working on activities that will be classified as research or
          development for the foreseeable future.
  *Government
          Regulation*
  The
          Company's present and future intended activities in the development, manufacture
          and sale of cancer therapy products are subject to extensive laws, regulations,
          regulatory approvals and guidelines. Within the United States, the Company's
          therapeutic radiological devices must comply with the U.S. Federal Food,
          Drug
          and Cosmetic Act, which is enforced by the FDA. The Company is also required
          to
          adhere to applicable FDA regulations for Good Manufacturing Practices,
          including
          extensive record keeping and periodic inspections of manufacturing facilities.
          IsoRay Medical's predecessor obtained FDA 510(k) clearance in March 2003
          to
          market the IsoRay 131 Cs
          seed
          for the treatment of localized solid tumors.
  Specifically,
          in the United States, the FDA regulates, among other things, new product
          clearances and approvals to establish the safety and efficacy of these
          products.
          We are also subject to other federal and state laws and regulations, including
          the Occupational Safety and Health Act and the Environmental Protection
          Act.
  The
          Federal Food, Drug, and Cosmetic Act and other federal statutes and regulations
          govern or influence the research, testing, manufacture, safety, labeling,
          storage, record keeping, approval, distribution, use, reporting, advertising
          and
          promotion of such products. Noncompliance with applicable requirements
          can
          result in civil penalties, recall, injunction or seizure of products, refusal
          of
          the government to approve or clear product approval applications,
          disqualification from sponsoring, or conducting clinical investigations,
          prevent
          us from entering into government supply contracts, withdrawal of previously
          approved applications and criminal prosecution.
  Approval
          of new medical devices is a lengthy procedure and can take a number of
          years and
          the expenditure of significant resources. There is a shorter FDA review
          and
          clearance process, the premarket notification process, or the 510(k) process,
          whereby a company can market certain medical devices that can be shown
          to be
          substantially equivalent to other legally marketed devices. We have been
          able to
          achieve market clearance for our 131 Cs
          seed
          using the 510(k) process.
  In
          the
          United States, medical devices are classified into three different categories
          over which FDA applies increasing levels of regulation: Class I,
          Class II and Class III. Most Class I devices are exempt
          from
          premarket notification (510(k)); most Class II devices require premarket
          notification (510(k)) and most Class III devices require premarket
          approval. Our 131 Cs
          seed
          is a Class II device and has received 510(k) clearance.
  
 19
 
 
  Each
          of
          our current and future products will have its own individual indication
          for use
          statement that has been cleared by the FDA. Each of these indications specify
          that the product is cleared for use in prescribed radiation therapy.
  As
          a
          registered medical device manufacturer with the FDA, we are subject to
          inspection to ensure compliance with their current Good Manufacturing Practices,
          or cGMP. These regulations require that we and any of our contract manufacturers
          design, manufacture and service products and maintain documents in a prescribed
          manner with respect to manufacturing, testing, distribution, storage, design
          control and service activities. Modifications or enhancements that could
          significantly affect the safety or effectiveness of a device or that constitute
          a major change to the intended use of the device require a new 510(k) notice
          for
          any product modification. We may be prohibited from marketing the modified
          product until the 510(k) notice is cleared by the FDA.
  The
          Medical Device Reporting regulation requires that we provide information
          to the
          FDA on deaths or serious injuries alleged to be associated with the use
          of our
          devices, as well as product malfunctions that are likely to cause or contribute
          to death or serious injury if the malfunction were to recur. Labeling and
          promotional activities are regulated by the FDA and, in some circumstances,
          by
          the Federal Trade Commission.
  As
          a
          medical device manufacturer, we are also subject to laws and regulations
          administered by governmental entities at the federal, state and local levels.
          For example, our facility is licensed as a medical product manufacturing
          facility in the State of Washington and is subject to periodic state regulatory
          inspections. Our customers are also subject to a wide variety of laws and
          regulations that could affect the nature and scope of their relationships
          with
          us.
  Moreover,
          our use, management and disposal of certain radioactive substances and
          wastes
          are subject to regulation by several federal and state agencies depending
          on the
          nature of the substance or waste material. We believe that we are in compliance
          with all federal and state regulations for this purpose.
  Washington
          voters approved Initiative 297 in late 2004, which may impose additional
          restrictions on sites at which mixed radioactive and hazardous wastes are
          generated and stored, including PNNL. The constitutionality of this initiative
          has been challenged, but if it were enforced it could impact our ability
          to
          manufacture our seeds, whether at PNNL or elsewhere in the State of
          Washington.
  *Seasonality*
  The
          Company is aware of a decrease in orders for the 131 Cs
          seed
          during the month of December. This decrease in orders is related to a decrease
          in the number of brachytherapy procedures performed during the month of
          December, as many physicians are on vacation. The Company is not aware
          of any
          other significant seasonal influences on its business. The composition
          of
          certain products and services changes modestly with shifts in weather with
          no
          material impact on total revenues.
  *Competition*
  The
          Company competes in a market characterized by technological innovation,
          extensive research efforts and significant competition. In general, the
          IsoRay
          seed competes with conventional methods of treating localized cancer, including,
          but not limited to, radical prostatectomy and external beam radiation therapy
          which includes intensity modulated radiation therapy, as well as competing
          permanent brachytherapy devices. RP has historically represented the most
          common
          medical treatment for early-stage, localized prostate cancer. EBRT is also
          a
          well-established method of treatment and is widely accepted for patients
          who
          represent a poor surgical risk or whose prostate cancer has advanced beyond
          the
          stage for which surgical treatment is indicated. Management believes that
          if
          general conversion from these treatment options (or other established or
          conventional procedures) to the IsoRay seed does occur, such conversion
          will
          likely be the result of a combination of equivalent or better efficacy,
          reduced
          incidence of side effects and complications, lower cost, quality of life
          issues
          and pressure by health care providers and patients.
  History
          has shown the advantage of being the first to market a new brachytherapy
          product. For example, ONCURA, now part of General Electric Company, currently
          claims nearly 50% of the market with the original I-125 seed. Theragenics
          Corp.,
          which introduced the original Pd-103 seed, is second with a nearly 30%
          market
          share. The Company believes it will obtain a similar and significant advantage
          by being the first to introduce a Cs-131 seed.
  
 20
 
 
  The
          Company's patented Cs-131 separation process is likely to provide us a
          sustainable competitive advantage in this area. Production of Cs-131 also
          requires specialized facilities (hot cells) that represent high cost and
          long
          lead time if not readily available. In addition, a competitor would need
          to
          develop a method for isotope attachment and seed assembly, would need to
          conduct
          testing to meet NRC and FDA requirements, and would need to obtain regulatory
          approvals before marketing a competing device.
  Because
          the exterior seed dimensions of all seeds are substantially the same, the
          threshold to physician acceptance of the IsoRay seed is not significant.
          Treatment planning systems and seed implantation equipment used worldwide
          all
          rely on seeds of the same length and diameter. Technical costs for users
          to
          switch from I-125 and Pd-103 to the IsoRay Cs-131 seed should be minimal.
  Several
          companies have obtained regulatory approval to produce and distribute
          Palladium-103 and Iodine-125 seeds, which compete directly with our seed.
          Ten of
          those companies represent nearly 100% of annual brachytherapy seed sales
          worldwide: ONCURA
          ( part
          of
          General Electric Company), Theragenics Corp., North American Scientific,
          Inc.,
          Mentor Corp., Implant Sciences Corp., International Brachytherapy S.A.,
          Cardinal
          Health, Inc., C.R. Bard, Inc., DRAXIMAGE (a
          division of DRAXIS Health,
          Inc.) and Best Medical International, Inc. The top three - ONCURA, Theragenics,
          and North American Scientific - currently garner nearly 90% of annual sales.
  It
          is
          possible that three or four of the current I-125 or Pd-103 seed manufacturers
          (i.e., ONCURA, Theragenics, North American Scientific, etc.) are capable
          of
          producing and marketing a Cs-131 seed, but none have reported efforts to
          do so.
          Best Medical obtained a seed core patent in 1992 that named 10 different
          isotopes, including Cs-131, for use in their seeds. Best Medical received
          FDA
          510(k) approval to market a Cs-131 seed on June 6, 1993 but has failed
          to
          produce any products for sale.
  *Additional
          Growth Opportunities*
  The
          Cs-131 isotope has the performance characteristics to be a technological
          platform for sustained long-term growth. The most immediate opportunities
          are
          introducing Cs-131 to Canada, Europe and other international markets,
          introducing Cs-131-based therapies for other forms of solid tumors focusing
          first on breast tumors, and through the marketing of other radioactive
          isotopes.
          These growth initiatives are in the early stages of planning and appear
          to be
          significant incremental opportunities.
  The
          Company plans to introduce Cs-131  initially
          into Europe and later into other international markets through partnerships
          and
          strategic alliances with channel partners for manufacturing and distribution.
          Another advantage of the Cs-131 isotope is its potential applicability
          to other
          cancers and other diseases. Cs-131 has FDA approval to be used for treatments
          for a broad spectrum of cancers including breast, brain, lung, and liver
          cancer,
          and the Company believes that a major opportunity exists as an adjunct
          therapy
          for the treatment of breast cancer. In addition to Y-90, there is the
          opportunity to develop and market other radioactive isotopes to the US
          market,
          and to market the Cs-131 isotope itself, separate from its use in our seeds.
  **Risk
          Factors**
  *Our
          Subsidiary's Independent Accountants Have Expressed Doubt About Its Ability
          To
          Continue As A Going Concern* .
          IsoRay
          Medical has generated material operating losses since inception and has
          a
          shareholders’ deficit. We expect to continue to experience net operating losses.
          Our ability to continue as a going concern is subject to our ability to
          obtain
          necessary funding from outside sources, including obtaining additional
          funding
          from the sale of our securities or obtaining loans and grants from various
          financial institutions where possible. The going concern increases the
          difficulty in meeting such goals. IsoRay Medical began generating revenue
          in
          October 2004, has generated revenue of approximately $410,000 through September
          30, 2005, and is in the early stages of marketing its IsoRay 131 Cs
          seed.
          IsoRay Medical and the Company have limited historical, operating or financial
          information upon which to evaluate their performance. There can be no assurance
          that the Company will attain profitability.
  *Our
          Revenues Depend Upon One Product* *.* Until
          such time as we develop additional products, our revenues depend upon the
          successful production, marketing, and sales of the IsoRay 131 Cs
          seed.
          The rate and level of market acceptance of this product may vary depending
          on
          the perception by physicians and other members of the healthcare community
          of
          its safety and efficacy as compared to that of competing products, if any;
          the
          clinical outcomes of the patients treated; the effectiveness of our sales
          and
          marketing efforts in the United States and Europe; any unfavorable publicity
          concerning our product or similar products; our product’s price relative to
          other products or competing treatments; any decrease in current reimbursement
          rates from the Centers for Medicare and Medicaid Services or third party
          payors;
          regulatory developments related to the manufacture or continued use of
          the
          product; availability of sufficient supplies of enriched barium for 131 Cs
          seed
          production; ability to produce sufficient quantities of this product; and
          the
          ability of physicians to properly utilize the device and avoid excessive
          levels
          of radiation to patients. Because of our reliance on this product as the
          sole
          source of our revenue, any material adverse developments with respect to
          the
          commercialization of this product may cause us to continue to incur losses
          rather than profits in the future.
  
 21
 
 
  *Although
          Approved To Treat Any Malignant Tissue, Our Sole Product Is Currently Used
          To
          Treat One Type Of Cancer.* Currently,
          the IsoRay 131 Cs
          seed
          is used exclusively for the treatment of prostate cancer. We believe the 131 Cs
          seed
          will be used to treat cancers of other sites as well, as is currently the
          case
          with our competitors' 1 25 I
          and 103 Pd
          seeds.
          However, we believe that clinical data gathered by select groups of physicians
          under treatment protocols specific to other organs, will be needed prior
          to
          widespread acceptance of our product for treating other cancer sites. If
          our
          current and future products do not become accepted in treating cancers
          of other
          sites, our sales will depend solely on treatment of prostate cancer and
          will
          require ever increasing market share to increase revenues.
  *We
          Have Limited Data On The Clinical Performance Of* *131* *Cs* .
          As of
          October 6, 2005, the IsoRay 131 Cs
          seed
          has been implanted in 75 **** patients.
          While this limited number of patients may prevent us from drawing statistically
          significant conclusions, the side effects experienced by these patients
          were
          less severe than side effects observed in seed brachytherapy with 125 I
          and 103 Pd
          and in
          other forms of treatment such as radical prostatectomy These early results
          indicate that the onset of side effects generally occurs between one and
          three
          weeks post-implant, and the side effects are resolved between five and
          eight
          weeks post-implant, indicating that, at least for these initial patients,
          side
          effects resolved more quickly than the side effects that occur with competing
          seeds or with other forms of treatment. These limited findings support
          management's belief that the 131 Cs
          seed
          will result in less severe side effects than competing treatments, but
          we may
          have to gather data on outcomes from additional patients before we can
          establish
          statistically valid conclusions regarding the incidence of side effects
          from our
          seeds.
  *We
          Will Need To Raise Additional Capital* .
          The
          hiring of upper level sales executives, entry into capital lease agreements
          for
          a glove box and a hot cell, and entry into executive contracts requiring
          payments upon reaching certain milestones significantly increased IsoRay
          Medical's monthly cash requirements since August 2004. Monthly operating
          cash
          requirements as of the date of this filing were approximately $500,000,
          excluding capitalized items. Ongoing requirements to meet greater payroll
          obligations coupled with legal and accounting fees related to completing
          the
          recent merger with IsoRay, Inc. and public reporting status have resulted
          in
          greater amounts of short-term cash demands. IsoRay Medical was actively
          raising
          capital prior to the merger and we will need to continue to raise
          capital.
  We
          will
          also need substantial funds to complete the development, manufacturing,
          and
          marketing of our current and future products. Consequently, we will seek
          to
          raise additional capital through not only public and private offerings
          of equity
          and debt securities, but also collaborative arrangements, strategic alliances,
          and equity and debt financings or from other sources. We will need to raise
          at
          least $5.5 million of additional capital to fund working capital needs
          through
          the end of 2006. IsoRay Medical has entered into a lease agreement and
          has
          constructed a manufacturing and production facility located in Richland,
          Washington that its management believes will provide adequate space to
          manufacture the 131 Cs
          seed
          product for the prostate and other organ cancer markets until late 2007.
  We
          may be
          unable to raise additional capital on commercially acceptable terms, if
          at all,
          and if we raise capital through additional equity financing, existing
          shareholders may have their ownership interests diluted. Our failure to
          be able
          to generate adequate funds from operations or from additional sources would
          harm
          our business.
  *The
          Passage Of Initiative 297 In Washington May Result In The Relocation Of
          Our
          Manufacturing Operations* *.* Washington
          voters approved Initiative 297 in late 2004, which may impose restrictions
          on
          sites at which mixed radioactive and hazardous wastes are generated and
          stored,
          including the PNNL, which is where our 131 Cs
          seed
          product has been manufactured to date. We are currently in the process
          of
          transitioning from PNNL to full production in our new, leased facility
          outside
          of PNNL. IsoRay has been assured by the Attorney General’s office of the State
          of Washington that medical isotopes are not included in Initiative 297
          and that
          manufacturing in IsoRay’s new production facility would not be interrupted, but
          there is no assurance that this interpretation of Initiative 297 by the
          Attorney
          General’s Office will continue to exclude medical isotopes. The U.S. Secretary
          of Energy is a party to litigation challenging the constitutionality of
          Initiative 297 in U.S. District Court. Due to this litigation, the State
          of
          Washington and the U.S. Justice Department have agreed to delay any
          implementation of Initiative 297 for an indefinite period of time. Thus,
          we have
          the ability to continue manufacturing seeds at PNNL for some period of
          time if
          needed as a back-up to our new IsoRay production facility, or to manufacture
          some of our new products there. If the State of Washington begins enforcement
          of
          the initiative, we may be unable to conduct any future production operations
          at
          PNNL under our Commercial Work For Others contract with the Department
          of
          Energy, and would have to conduct our manufacturing operations in alternate
          facilities.
  
 22
 
 
  Management
          believes that we will be able to continue our manufacturing operations
          in the
          State of Washington for the foreseeable future, whether at PNNL or at our
          new
          leased facility, which is now operational. In the event Initiative 297
          is
          enforced against us, management may consider establishing an alternate
          manufacturing facility outside of Washington, and we may consider moving
          all or
          part of our operations to another state even if Initiative 297 is not enforced
          against us. ****
  *We
          Have Limited Manufacturing Experience And May Not Be Able To Meet
          Demand* .
          The
          existing management team and staff of IsoRay Medical and the Company have
          experience primarily in research and development of products and our experience
          in commercial-scale manufacturing is limited. IsoRay Medical began commercial
          production of the 131 Cs
          seed
          in the fourth quarter of 2004 and has completed 45 production-scale 131 Cs
          separation runs as of October 3, 2005. IsoRay Medical recently demonstrated
          production of 90 Y
          using a
          process suitable for weekly production of commercial-scale quantities of
          this
          isotope. Although IsoRay Medical's management team has significant
          radiochemistry experience, there is a possibility that production demands
          may
          result in challenges that may be too difficult or expensive to overcome.
          IsoRay
          Medical has developed and deployed semi-automated laser welding equipment
          that
          can produce seeds faster than a certain fully-automated line of equipment
          the
          Company has reviewed that would cost several million dollars to design
          and
          fabricate. IsoRay Medical believes it will continually find more efficient
          means
          of welding the titanium seeds, however, there is a possibility that future
          demand will outstrip our ability to produce seeds using the semi-automated
          process. We cannot ensure that either IsoRay Medical's manufacturing processes
          or its ability to sustain ongoing production of its products will be able
          to
          meet demand.
  *Sales
          And Marketing Experience* *.* IsoRay
          Medical's sales and marketing team has extensive experience in successfully
          establishing and training domestic and international sales forces as well
          as
          successfully introducing new medical devices to the market, but we have
          limited
          specific experience with commercial sales and marketing of the Cesium-131
          radioisotope. IsoRay Medical has employed marketing professionals with
          extensive
          experience selling medical devices, including radioisotopes for large,
          international companies. Our initial marketing activities have been targeted
          to
          a limited number of physicians and treatment centers, and we will need
          to
          recruit additional employees to assist in expanding our customer base.
          We have
          developed in-house customer service, order entry, shipping, billing, customer
          reimbursement assistance, and sales support. However, we cannot be certain
          that
          our products will be marketed and distributed in accordance with our
          expectations or that our market research will be accurate. We also cannot
          be
          certain that we will be able to develop our own sales and marketing capabilities
          to the extent anticipated by management. We may choose to add third-party
          distribution channels, but we may not be able to maintain satisfactory
          arrangements with the third parties upon whom we rely. ****
  *Our
          Operating Results Will Be Subject To Significant Fluctuations* *.* Our
          quarterly revenues, expenses, and operating results are likely to fluctuate
          significantly in the future. Fluctuation may result from a variety of factors,
          which are discussed in detail throughout this “RISK FACTORS” section,
          including:
  ·
                our
                    achievement of product development objectives and milestones;
  ·
                demand
                    and pricing for the Company's products;
  ·
                effects
                    of aggressive competitors;
  ·
                hospital,
                    clinic and physician buying decisions;
  ·
                research
                    and development and manufacturing expenses;
  
 23
 
 
  ·
                patient
                    outcomes from our therapy;
  ·
                physician
                    acceptance of our products;
  ·
                government
                    or private healthcare reimbursement policies;
  ·
                our
                    manufacturing performance and capacity;
  ·
                incidents,
                    if any, that could cause temporary shutdown of our manufacturing
                    facilities;
  ·
                the
                    amount and timing of sales orders;
  ·
                rate
                    and success of future product approvals;
  ·
                timing
                    of FDA approval, if any, of competitive products and the rate
                    of market
                    penetration of competing products;
  ·
                seasonality
                    of purchasing behavior in our market;
  ·
                overall
                    economic conditions; and
  ·
                the
                    successful introduction or market penetration of alternative
                    therapies.
  *We
          Rely Heavily On A Limited Number Of Suppliers* *.* Some
          materials used in our products are currently available only from a limited
          number of suppliers. For example, virtually all titanium tubing used in
          brachytherapy seed manufacture comes from a single source, Accellent
          Corporation. We currently obtain a key component of our seed core from
          a single
          supplier. Any interruption or delay in the supply of materials required
          to
          produce our products could harm our business if we were unable to obtain
          an
          alternative supplier or substitute equivalent materials in a cost-effective
          and
          timely manner. Additional factors that could cause interruptions or delays
          in
          our source of materials include limitations on the availability of raw
          materials
          or manufacturing performance experienced by our suppliers and a breakdown
          in our
          commercial relations with one or more suppliers. Some of these factors
          may be
          completely out of our control and our suppliers’ control.
  *Future
          Production Increases Will Depend on Our Ability to Acquire Larger Quantities
          of* *131* *Cs.* IsoRay
          currently obtains 131 Cs
          through reactor irradiation of natural barium and subsequent separation
          of
          cesium from the irradiated barium targets. The amount of 131 Cs
          that
          can be produced from a given reactor source is limited by the power level
          and
          volume available within the reactor for irradiating targets. This limitation
          can
          be overcome by utilizing barium feedstock that is enriched in the stable
          isotope 130 Ba.
          However, the number of suppliers of enriched barium is limited and they
          may be
          unable to produce this material in sufficient quantities at a reasonable
          price.
          IsoRay has entered into an exclusive agreement with the Institute of Nuclear
          Materials in the former Soviet Union to provide irradiated barium and 131 Cs
          in
          quantities sufficient to supply a significant percentage of future demand
          for 131 Cs.
          IsoRay believes this will provide access to a supply of enriched barium
          as well
          that may be recycled for use in other reactors to increase the production
          of 131 Cs.
          Although the agreement provides for supplying 131 Cs
          in
          significant quantities, there is no assurance that this will result in
          IsoRay
          gaining access to a sufficient supply of enriched barium feedstock. **
  *We
          Are Subject To Uncertainties Regarding Reimbursement* *For
          Use Of Our Products.* Hospitals
          and freestanding clinics may be less likely to purchase our products if
          they
          cannot be assured of receiving favorable reimbursement for treatments using
          our
          products from third-party payors, such as Medicare, Medicaid and private
          health
          insurance plans. Currently, Medicare reimburses hospitals, clinics and
          physicians for the cost of seeds used in brachytherapy procedures on a
          per seed
          basis. Historically, private insurers have followed Medicare guidelines
          in
          establishing reimbursement rates. However, third-party payors are increasingly
          challenging the pricing of certain medical services or devices, and we
          cannot be
          sure that they will reimburse our customers at levels sufficient for us
          to
          maintain favorable sales and price levels for our products. There is no
          uniform
          policy on reimbursement among third-party payors, and we can provide no
          assurance that our products will continue to qualify for reimbursement
          from all
          third-party payors or that reimbursement rates will not be reduced. A reduction
          in or elimination of third-party reimbursement for treatments using our
          products
          would likely have a material adverse effect on our revenues.
  
 24
 
 
  In
          2003,
          IsoRay applied to the Centers for Medicare and Medicaid Services (CMS)
          and
          received reimbursement codes for use of our 131 Cs
          seed
          (HCPCS code C2633 and APC code 2633). However, since January 1, 2004 hospitals
          and clinics ordering brachytherapy seeds have been reimbursed for the cost
          of
          the seeds plus a fixed mark-up at a rate prescribed by CMS. Reimbursement
          amounts are typically reviewed and adjusted every two years (the next scheduled
          adjustment is in January 2006 for the calendar years 2007 and 2008) while
          reimbursement policies are reviewed and revised on an ad hoc basis. Adjustments
          could be made to these reimbursement amounts or policies, which could result
          in
          reduced reimbursement for brachytherapy services, which could negatively
          affect
          market demand for our products.
  Furthermore,
          any federal and state efforts to reform government and private healthcare
          insurance programs could significantly affect the purchase of healthcare
          services and products in general and demand for our products in particular.
          We
          are unable to predict whether potential healthcare reforms will be enacted,
          whether other healthcare legislation or regulations affecting the business
          may
          be proposed or enacted in the future or what effect any such legislation
          or
          regulations would have on our business, financial condition or results
          of
          operations.
  *It
          Is
          Possible That Other Treatments May Be Deemed Superior To Brachytherapy.* Our 131 Cs
          seed
          faces competition not only from companies that sell other radiation therapy
          products, but also from companies that are developing alternative therapies
          for
          the treatment of cancers. It is possible that advances in the pharmaceutical,
          biomedical, or gene therapy fields could render some or all radiation therapies,
          whether conventional or brachytherapy, obsolete. If alternative therapies
          are
          proven or even perceived to offer treatment options that are superior to
          brachytherapy, physician adoption of our product could be negatively affected
          and our revenues from our product could decline.
  *Our
          Industry Is Intensely Competitive* *.* The
          medical products industry is intensely competitive. We compete with both
          public
          and private medical device, biotechnology and pharmaceutical companies
          that have
          been established longer than we have, have a greater number of products
          on the
          market, have greater financial and other resources, and have other technological
          or competitive advantages. We also compete with academic institutions,
          government agencies, and private research organizations in the development
          of
          technologies and processes and in acquiring key personnel. Although we
          have
          patents granted and patents applied for to protect our isotope separation
          processes and 131 Cs
          seed
          manufacturing technology, we cannot be certain that one or more of our
          competitors will not attempt to obtain patent protection that blocks or
          adversely affects our product development efforts. To minimize this potential,
          we have entered into exclusive agreements with key suppliers of isotopes
          and
          isotope precursors.
  *We
          Are Smaller Than Many Of Our Competitors.* Because
          we are a relatively small company, there is a risk that potential customers
          will
          purchase products from larger manufacturers, even if our products are
          technically superior, based on the perception that a larger, more established
          manufacturer may offer greater certainty of continued product improvements,
          support and service, which could cause our sales to fail to increase or
          to
          decline.
  *We
          May Be Unable To Adequately Protect Or Enforce Our Intellectual Property
          Rights
          Or Secure Rights To Third-Party Patents* *.* Our
          ability and the abilities of our partners to obtain and maintain patent
          and
          other protection for our products will affect our success. We are assigned,
          have
          rights to, or have exclusive licenses to patents and patents pending in
          the U.S.
          and numerous foreign countries. The patent positions of medical device
          companies
          can be highly uncertain and involve complex legal and factual questions.
          Our
          patent rights may not be upheld in a court of law if challenged. Our patent
          rights may not provide competitive advantages for our products and may
          be
          challenged, infringed upon or circumvented by our competitors. We cannot
          patent
          our products in all countries or afford to litigate every potential violation
          worldwide.
  Because
          of the large number of patent filings in the medical device and biotechnology
          field, our competitors may have filed applications or been issued patents
          and
          may obtain additional patents and proprietary rights relating to products
          or
          processes competitive with or similar to ours. We cannot be certain that
          U.S. or
          foreign patents do not exist or will not be issued that would harm our
          ability
          to commercialize our products and product candidates.
  *One
          Of Our Licensed Patents May Be Terminated Under Certain
          Conditions* .
          Our 131 Cs
          separation patent is essential for the production of Cesium-131. The owner
          of
          the patent, Lane Bray, a shareholder of the Company and Chief Chemist of
          IsoRay
          Medical, has the right to terminate the license agreement that allows the
          Company to use this patent if we discontinue production for any consecutive
          18
          month period. The Company has no plans to discontinue production, and management
          considers it highly unlikely that production will be discontinued for any
          significant period at any time in the future.
  
 25
 
 
  *Failure
          To Comply With Government Regulations Could Harm Our Business* .
          As a
          medical device and medical isotope manufacturer, we are subject to extensive,
          complex, costly, and evolving governmental rules, regulations and restrictions
          administered by the FDA, by other federal and state agencies, and by
          governmental authorities in other countries. Compliance with these laws
          and
          regulations is expensive and time-consuming, and changes to or failure
          to comply
          with these laws and regulations, or adoption of new laws and regulations,
          could
          adversely affect our business.
  In
          the
          United States, as a manufacturer and seller of medical devices and devices
          utilizing radioactive by-product material, we are subject to extensive
          regulation by federal governmental authorities, such as the FDA and state
          and
          local regulatory agencies, such as the State of Washington, **** to
          ensure
          such devices are safe and effective. Such regulations, which include the
          U.S.
          Food, Drug and Cosmetic Act, or the FDC Act, and regulations promulgated
          by the
          FDA, govern the design, development, testing, manufacturing, packaging,
          labeling, distribution, import/export, possession, marketing, disposal,
          clinical
          investigations involving humans, sale and marketing of medical devices,
          post-market surveillance, repairs, replacements, recalls and other matters
          relating to medical devices, radiation producing devices and devices utilizing
          radioactive by-product material. State regulations are extensive and vary
          from
          state to state. Our brachytherapy seeds constitute medical devices subject
          to
          these regulations. Future products may also constitute medical devices
          and be
          subject to regulation as such. These laws require that manufacturers adhere
          to
          certain standards designed to ensure that the medical devices are safe
          and
          effective. Under the FDC Act, each medical device manufacturer must comply
          with
          requirements applicable to manufacturing practices.
  In
          the
          United States, medical devices are classified into three different categories,
          over which the FDA applies increasing levels of regulation: Class I,
          Class II, and Class III. Our 131 Cs
          seed
          has been classified as a Class II device. Before a new device can be introduced
          into the United States market, the manufacturer must obtain FDA clearance
          or
          approval through either a 510(k) premarket notification or a premarket
          approval,
          unless the product is otherwise exempt from the requirements.
  Our 131 Cs
          seed
          has received clearance from the FDA through the 510(k) premarket notification
          process. For any devices already cleared through the 510(k) process,
          modifications or enhancements that could significantly affect safety or
          effectiveness, or constitute a major change in intended use, require a
          new
          510(k) submission and a separate FDA determination of substantial equivalence.
          In addition, the FDA may determine that future products require the more
          costly,
          lengthy and uncertain premarket approval process under Section 515
          of the
          FDC. The approval process under Section 515 generally takes from
          one to
          three years, but in many cases can take even longer, and there can be no
          assurance that any approval will be granted on a timely basis, if at all.
          Under
          the premarket approval process, an applicant must generally conduct at
          least one
          clinical investigation and submit extensive supporting data and clinical
          information establishing the safety and effectiveness of the device, as
          well as
          extensive manufacturing information. Clinical investigations themselves
          are
          typically lengthy and expensive, closely regulated and frequently require
          prior
          FDA clearance. Even if clinical investigations are conducted, there is
          no
          assurance that they will support the claims for the product. If the FDA
          requires
          us to submit a new premarket notification under Section 510(k) for
          modifications to our products, or if the FDA requires us to go through
          the
          lengthier, more rigorous Section 515 premarket approval process,
          our
          product introductions or modifications could be delayed or cancelled, which
          could cause our revenues to decline.
  In
          addition to FDA-required market clearances and approvals for our products,
          our
          manufacturing operations are required to comply with the FDA’s Quality System
          Regulation, or QSR, which addresses the quality program requirements, such
          as a
          company’s management responsibility for the company’s quality systems, and good
          manufacturing practices, product design, controls, methods, facilities
          and
          quality assurance controls used in manufacturing, assembly, packing, storing
          and
          installing medical devices. Compliance with the QSR is necessary to receive
          FDA
          clearance or approval to market new products and is necessary for us to
          be able
          to continue to market cleared or approved product offerings. There can
          be no
          assurance that we will not incur significant costs to comply with these
          regulations in the future or that the regulations will not have a material
          adverse effect on our business, financial condition and results of operations.
          Our compliance and the compliance by some of our suppliers with applicable
          regulatory requirements is and will continue to be monitored through periodic
          inspections by the FDA. The FDA makes announced and unannounced inspections
          to
          determine compliance with the QSRs and may issue us 483 reports listing
          instances where we have failed to comply with applicable regulations and/or
          procedures or warning letters which, if not adequately responded to, could
          lead
          to enforcement actions against us, including fines, shutdown of our production
          facilities, and criminal prosecution.
  
 26
 
 
  If
          we or
          any of our suppliers fail to comply with FDA requirements, the FDA can
          institute
          a wide variety of enforcement actions, ranging from a public warning letter
          to
          more severe sanctions such as:
  ·
                fines,
                    injunctions and civil penalties;
  ·
                the
                    recall or seizure of our products;
  ·
                the
                    imposition of operating restrictions, partial suspension or total
                    shutdown
                    of production;
  ·
                the
                    refusal of our requests for 510(k) clearance or premarket approval
                    of new
                    products;
  ·
                the
                    withdrawal of 510(k) clearance or premarket approvals already
                    granted; and
  ·
                criminal
                    prosecution.
  Similar
          consequences could arise from our failure or the failure by any of our
          suppliers
          to comply with applicable foreign laws and regulations if we begin marketing
          our
          products in foreign countries. Foreign regulatory requirements vary by
          country.
          In general, our products will be regulated outside the United States as
          medical
          devices by foreign governmental agencies similar to the FDA. However, the
          time
          and cost required to obtain regulatory approvals from foreign countries
          could be
          longer than that required for FDA clearance and the requirements for licensing
          a
          product in another country may differ significantly from the FDA requirements.
          We will rely, in part, on our foreign distributors to assist us in complying
          with foreign regulatory requirements. We may not be able to obtain these
          approvals without incurring significant expenses or at all, and the failure
          to
          obtain these approvals would prevent us from selling our products in the
          applicable countries. This could limit our sales and growth.
  *Our
          Business Exposes Us To Product Liability Claims* *.* Our
          design, testing, development, manufacture, and marketing of products involve
          an
          inherent risk of exposure to product liability claims and related adverse
          publicity. Insurance coverage is expensive and difficult to obtain, and,
          although we currently have a five million dollar policy, in the future
          we may be
          unable to obtain or renew coverage on acceptable terms, if at all. If we
          are
          unable to obtain or renew sufficient insurance at an acceptable cost or
          if a
          successful product liability claim is made against us, whether fully covered
          by
          insurance or not, our business could be harmed.
  *Our
          Business Involves Environmental Risks* *.* Our
          business involves the controlled use of hazardous materials, chemicals,
          biologics, and radioactive compounds. Manufacturing is extremely susceptible
          to
          product loss due to radioactive, microbial, or viral contamination; material
          or
          equipment failure; vendor or operator error; or due to the very nature
          of the
          product's short half-life. Although we believe that our safety procedures
          for
          handling and disposing of such materials comply with state and federal
          standards
          there will always be the risk of accidental contamination or injury. In
          addition, radioactive, microbial, or viral contamination may cause the
          closure
          of the respective manufacturing facility for an extended period of time.
          By law,
          radioactive materials may only be disposed of at state-approved facilities.
          We
          currently dispose of our radioactive waste through the Battelle managed
          PNNL
          site under a one year renewable agreement. At our new, leased facility
          we intend
          to use commercial disposal contractors. We may incur substantial costs
          related
          to the disposal of these materials. If we were to become liable for an
          accident,
          or if we were to suffer an extended facility shutdown, we could incur
          significant costs, damages, and penalties that could harm our business.
  *We
          Rely Upon Key Personnel* *.* Our
          success will depend, to a great extent, upon the experience, abilities
          and
          continued services of our executive officers and key scientific personnel.
          If we
          lose the services of several of these officers or key scientific personnel,
          our
          business could be harmed. Our success also will depend upon our ability
          to
          attract and retain other highly qualified scientific, managerial, sales,
          and
          manufacturing personnel and their ability to develop and maintain relationships
          with key individuals in the industry. Competition for these personnel and
          relationships is intense and we compete with numerous pharmaceutical and
          biotechnology companies as well as with universities and non-profit research
          organizations. We may not be able to continue to attract and retain qualified
          personnel.
  
 27
 
 
  *The
          Value Of Our Granted Patent, and Our Patents Pending, Is
          Uncertain* *.* Although
          our management strongly believes that our patent on the process for producing 131 Cs,
          our
          patent pending on the manufacture of the brachytherapy seed, our patent
          applications on additional methods for producing 131 Cs
          and 90 Y
          which
          have been filed, and anticipated future patent applications, which have
          not yet
          been filed, have significant value, we cannot be certain that other like-kind
          processes may not exist or be discovered, that any of these patents is
          enforceable, or that any of our patent applications will result in issued
          patents.
  *Our
          Ability To Expand Into Foreign Markets Is Uncertain.* Our
          future growth will depend in part on our ability to establish, grow and
          maintain
          product sales in foreign markets, particularly in Europe and Asia. However,
          we
          have limited experience in marketing and distributing products in other
          countries. Any foreign operations would subject us to additional risks
          and
          uncertainties, including our customers' ability to obtain reimbursement
          for
          procedures using our products in foreign markets; the burden of complying
          with
          complex and changing foreign regulatory requirements; language barriers
          and
          other difficulties in providing long-range customer service; potentially
          longer
          accounts receivable collection times; significant currency fluctuations,
          which
          could cause third party distributors to reduce the number of products they
          purchase from us because the cost of our products to them could fluctuate
          relative to the price they can charge their customers; reduced protection
          of
          intellectual property rights in some foreign countries; and the possibility
          that
          contractual provisions governed by foreign laws would be interpreted differently
          than intended in the event of a contract dispute. Any future foreign sales
          of
          our products could also be adversely affected by export license requirements,
          the imposition of governmental controls, political and economic instability,
          trade restrictions, changes in tariffs and difficulties in staffing and
          managing
          foreign operations. Many of these factors may also affect our ability to
          import
          enriched barium from Russia under our contract with the Institute of Nuclear
          Materials. ****
  *Our
          Ability To Initiate Operations And Manage Growth Is Uncertain* *.* Our
          efforts to commercialize our medical products will result in new and increased
          responsibilities for management personnel and will place a strain upon
          the
          entire company. To compete effectively and to accommodate growth, if any,
          we may
          be required to continue to implement and to improve our management,
          manufacturing, sales and marketing, operating and financial systems, procedures
          and controls on a timely basis and to expand, train, motivate and manage
          our
          employees. There can be no assurance that our personnel, systems, procedures,
          and controls will be adequate to support our future operations. If the
          IsoRay 131 Cs
          seed
          were to rapidly become the "seed of choice," it is unlikely that we could
          meet
          demand. We could experience significant cash flow difficulties and may
          have
          difficulty obtaining the working capital required to manufacture our products
          and meet demand. This would cause customer discontent and invite competition.
  *Our
          Reporting Obligations As A Public Company Are Costly.* Operating
          a public company involves substantial costs to comply with reporting obligations
          under federal securities laws that are continuing to increase as provisions
          of
          the Sarbanes Oxley Act of 2002 are implemented. These reporting obligations
          will
          increase our operating costs. We may not reach sufficient business volume
          to
          justify our public reporting status.
  *There
          Is A Limited Market For Our Common Stock.* Currently
          only a limited trading market exists for our common stock. Our common stock
          currently trades on the Pink Sheets, a market with very limited liquidity
          and
          minimal listing standards, under the symbol "ISRY.PK." Any broker/dealer
          that
          makes a market in our stock or other person that buys or sells our stock
          could
          have a significant influence over its price at any given time, and quotations
          are limited and sporadic. We have applied for a listing on the Over-the
          Counter
          Bulletin Board, but there can be no assurance that such a listing will
          be
          obtained. Even if we are listed on the Over-the-Counter Bulletin Board,
          shareholders may experience more difficulty in attempting to sell their
          shares
          than if the shares were listed on a national stock exchange or quoted on
          the
          NASDAQ Stock Market. We cannot assure our shareholders that a market of
          our
          stock will be sustained. There is no assurance that our shares will have
          any
          greater liquidity than shares that do not trade on a public market.
  *Our
          Stock Price Is Likely To Be Volatile.* There
          is
          generally significant volatility in the market prices and limited liquidity
          of
          securities of early stage companies, and particularly of early stage medical
          product companies. Contributing to this volatility are various events that
          can
          affect our stock price in a positive or negative manner. These events include,
          but are not limited to: governmental approvals, refusals to approve, regulations
          or actions; market acceptance and sales growth of our products; litigation
          involving the Company or our industry; developments or disputes concerning
          our
          patents or other proprietary rights; changes in the structure of healthcare
          payment systems; departure of key personnel; future sales of our securities;
          fluctuations in our financial results or those of companies that are perceived
          to be similar to us; investors' general perception of us; and general economic,
          industry and market conditions. If any of these events occur, it could
          cause our
          stock price to fall.
  
 28
 
 
  *Our
          Common Stock May Be Subject To Penny Stock Regulation.* If
          the
          market price of our shares declines below $5.00 per share, our shares would
          be
          subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities
          Exchange Act of 1934, as amended, commonly referred to as the "penny stock"
          rule. Section 15(g) sets forth certain requirements for transactions in
          penny
          stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock
          as that
          used in Rule 3a51-1 of the Exchange Act. The SEC generally defines penny
          stock
          to be any equity security that has a market price less than $5.00 per share,
          subject to certain exceptions. Rule 3a51-1 provides that any equity security
          is
          considered to be penny stock unless that security is: registered and traded
          on a
          national securities exchange meeting specified criteria set by the SEC;
          authorized for quotation on The NASDAQ Stock Market; issued by a registered
          investment company; excluded from the definition on the basis of price
          (at least
          $5.00 per share) or the registrant's net tangible assets; or exempted from
          the
          definition by the SEC. If our shares were deemed to be "penny stocks",
          trading
          in the shares would be subject to additional sales practice requirements
          on
          broker-dealers who sell penny stocks to persons other than established
          customers
          and accredited investors.
  Employees
  Currently
          IsoRay, Inc. has four (4) full-time employees. IsoRay Medical employs twenty
          full-time individuals, one temporary individual and one part-time
          individual. The Company's future success will depend, in part, on its ability
          to
          attract, retain, and motivate highly qualified technical and management
          personnel. From time to time, the Company may employ independent consultants
          or
          contractors to support its research and development, marketing, sales and
          support and administrative organizations. Neither the Company's nor IsoRay
          Medical's employees are represented by any collective bargaining
          unit.
  **ITEM
          2 - DESCRIPTION OF PROPERTY**
  The
          Company leased, prior to July 2005, approximately 1,941 square feet of
          office
          space at 4701 IDS Center, Minneapolis, Minnesota 55402. This space was
          sub-leased to a separate company owned by the Company's then-CEO. The Company
          incurred no expense related to this lease during any period reflected in
          this
          Transitional Report on Form 10-KSB.
  Subsequent
          to June 2005, the Company's executive offices are now located at 350 Hills
          Street, Suite 106, Richland, WA 99354, (509) 375-1202, where IsoRay Medical
          currently leases approximately 3,100 square feet of office and laboratory
          space
          for $4,196 per month from Energy Northwest. The lease expires December
          31, 2005.
          The Company is not affiliated with its lessor. Additional office space
          will be
          needed as employees are hired, and is currently available at this location.
          The
          Company believes that its current facilities will be adequate until the
          end of
          2005, but it will need additional facilities at that time. In the future,
          due to
          business growth, the Company may elect to combine administrative services
          and
          production in one building which the Company may lease or build depending
          on
          market conditions.
  In
          April
          2004, IsoRay Medical's predecessor signed a contract with PNNL, permitting
          IsoRay Medical to subcontract certain of its manufacturing needs to PNNL,
          use
          PNNL facilities to produce the Cs-131 brachytherapy seeds, and ship them
          to
          customers from the PNNL facilities. Using PNNL's facilities has reduced
          the
          immediate need for IsoRay Medical to purchase specialized capital-intensive
          equipment. The contract allows it to manufacture Cs-131 seeds in PNNL until
          it
          expires in December 2006. Management believes that IsoRay will have sufficient
          time prior to this contract’s expiration to shift production to IsoRay’s new
          facility, described below.
  We
          have
          entered into a lease, which commenced as of regulatory licensing approval
          on
          October 6, 2005, for a facility located in Richland, Washington
          that
          management believes will provide adequate space to manufacture the Cs-131
          product for the prostate cancer markets until late 2007. The lease is for
          a term
          of twelve months following regulatory licensing approval, and payment for
          the
          lease term is the issuance of 25,800 shares of IsoRay Medical (pre-merger)
          common stock. The lease may be extended on a month-to-month basis by mutual
          agreement of the parties. The lessor is Pacific EcoSolutions Incorporated,
          and
          the Company is not affiliated with this lessor.
  The
          Company’s management believes that all facilities occupied by the Company are
          adequate for present requirements, and that the Company’s current equipment is
          in good condition and is suitable for the operations involved.
  
 29
 
 
  **ITEM
          3 - LEGAL PROCEEDINGS**
  The
          Company is not involved in any material legal proceedings.
  **ITEM
          4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
  No
          matter
          was submitted to a vote of the Company’s security holders during the fourth
          quarter of the fiscal year covered by this Transitional Report.
  **PART
          II**
  **ITEM
          5 - MARKET FOR COMMON EQUITY, RELATED STOCKHOLDERS’ MATTERS AND SMALL BUSINESS
          ISSUER PURCHASES OF EQUITY SECURITIES**
  The
          Company's Articles of Incorporation provide that the Company has the authority
          to issue 200,000,000 shares of capital stock, which are currently divided
          into
          two classes as follows: 194,000,000 shares of common stock, par value of
          $0.001
          per share; and 6,000,000 shares of preferred stock, par value of $0.001
          per
          share. Immediately prior to the Merger, and following its recent 30:1 reverse
          stock split, the Company had approximately 2,498,000 shares of common stock
          outstanding, and no shares of preferred stock outstanding.
  Our
          common stock is quoted on the Pink Sheets under the symbol “ISRY.PK.” We resumed
          trading on the Pink Sheets on August 18, 2005, after a period of no trading
          activity (under our prior symbol "CPPC.PK") from February 18, 2005 until
          August
          18, 2005. We also had a period of no trading activity from July 2003 until
          February 7, 2005. Prior to August 18, 2005, there was an absence of an
          established trading marking for the Company’s common stock, the market was very
          limited and sporadic, and no quotations from October 1, 2003 through July
          2005
          exceeded $0.01 per share.
  On
          September 26, 2005, the last reported bid price of our common stock as
          reported
          on the Pink Sheets was $5.50 per share. This quotation represents an
          inter-dealer price without retail mark-up, mark-down or commissions, and
          may not
          necessarily represent an actual transaction.
  As
          of
          September 26, 2005, we have approximately 811 shareholders of record, exclusive
          of shares held in street name.
  Equity
          Compensation Plans
  On
          May
          27, 2005, the Company adopted the 2005 Stock Option Plan (the "Option Plan")
          and
          the 2005 Employee Stock Option Plan (the "Employee Plan"), pursuant to
          which it
          may grant equity awards to eligible persons. The Option Plan allows the
          Board of
          Directors to grant options to purchase up to 1,500,000 shares of common
          stock to
          directors, officers, key employees and service providers of the Company,
          and the
          Employee Plan allows the Board of Directors to grant options to purchase
          up to
          1,500,000 shares of common stock to officers and key employees of the Company.
          As of June 30, 2005, no options had been granted under either plan.
  
  
 30
 
 
 **Plan
                    Category**
                
                Number
                    of securities to be issued on exercise of outstanding options,
                    warrants
                    and rights
                  #
                
                Weighted-average
                    exercise price of outstanding options, warrants, and rights
                  $
                
                Number
                    of securities remaining available for future issuance under equity
                    compensation plansEquity
                    compensation plans
                  approved
                    by shareholders
                
                
                N/A
                
                
                N/A
                
                
                N/AEquity
                    compensation plans
                  not
                    approved by shareholders
                
                
                N/A
                
                
                N/A
                
                
                3,000,000Total
                
                
                N/A
                
                
                N/A
                
                
                3,000,000
 
 The
          Company has never paid any cash dividends on its Common Stock and does
          not plan
          to pay any cash dividends in the foreseeable future.
  Pursuant
          to the Merger Agreement, all rights and privileges granted to IsoRay
          shareholders owning common and preferred stock were converted into substantially
          similar rights and privileges when the shareholders received IsoRay, Inc.
          shares
          of common and preferred stock subject solely to the differences between
          Delaware
          (IsoRay Medical) and Minnesota (IsoRay) laws.
  Preferred
          Stock
  On
          May
          27, 2005, the Company’s Board of Directors created two series of shares of
          Preferred Stock designated as Series A Convertible Preferred Stock and
          Series B
          Convertible Preferred Stock. The Series A Convertible Preferred Stock (the
          Series A Stock) consists of an aggregate of 1,000,000 shares, $0.001 par
          value,
          and the Series B Convertible Preferred Stock (Series B Stock) consists
          5,000,000
          shares, $0.001 par value (collectively, "Preferred Stock"). The Preferred
          Stock
          has preferences, limitations and relative rights in preference to the holders
          of
          any other stock of the Company. The Preferred Stock may be converted into
          common
          stock at a rate of one share of common stock for each one share of Preferred
          Stock being converted. Holders of Preferred Stock are also entitled to
          receive
          certain annual dividends, and no dividends of any type may be paid on the
          common
          stock unless all dividends to which the holders of Preferred Stock shall
          have
          been entitled shall have been paid or declared and a sum of money sufficient
          for
          the payment thereof set apart.
   **ITEM
          6 - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
          OPERATION**
  **Results
          of Operations**
  We
          have
          had no revenue for the nine months ended June 30, 2005 or for either of
          the
          years ended September 30, 2004 and 2003.
  Nine
          months ended June 30, 2005 compared to the Year ended September 30,
          2004
  On
          July
          28, 2005, the Company entered into a reverse merger transaction with IsoRay
          Medical, Inc. whereby IsoRay Medical, Inc. became a wholly-owned subsidiary
          of
          the Company.
  The
          acquisition of IsoRay Medical on July 28, 2005 by the Company effected
          a change
          in control and was accounted for as a “reverse acquisition” whereby IsoRay is
          the accounting acquirer for financial statement purposes. Accordingly,
          for all
          periods subsequent to July 28, 2005, the financial statements of the Company
          reflect the historical financial statements of IsoRay from the inception
          of each
          respective entity composing IsoRay Medical, Inc. at the July 28, 2005 change
          in
          control transaction and the operations of the Company subsequent to the
          July 28,
          2005 transaction.
  
 31
 
 
  The
          Company originally had a September 30 year end. As a result of the July
          28, 2005
          reverse acquisition transaction, the Company’s Board of Directors changed
          IsoRay, Inc.’s (formerly Century Park Pictures Corporation) year-end to
          June 30 to correspond to the year end of its newly acquired subsidiary,
          IsoRay Medical, Inc.
  Accordingly,
          the reported financial results of the Company in this Transitional Report
          on
          Form 10-KSB will not be representative of the reported (and/or anticipated)
          results of operations in future periods.
  General
          and administrative expenses for the nine months ended June 30, 2005 were
          approximately $30,128 as compared to approximately $5,000 for the year
          ended
          September 30, 2004. The increase was directly related to various professional
          fees incurred in the consummation of the July 2005 business combination
          transaction with IsoRay Medical, Inc.
  In
          conjunction with a May 2005 sale of equity securities for approximately
          $85,000,
          the Company, the Company’s then-CEO and the purchasing shareholders negotiated a
          settlement whereby all outstanding debt owed to the then-CEO in the form
          of
          accrued compensation and working capital advances was settled in full for
          approximately $50,000. The Company recognized a reversal of accrued compensation
          of approximately $304,500 as a result of this negotiation.
  Year
          ended September 30, 2004 compared to Year ended September 30,
          2003
  General
          and administrative expenses for the years ended September 30, 2004 and
          2003 were
          approximately $12,000 and $60,000, respectively. The principal component
          of
          these expenditures was the accrual of interest on outstanding notes payable
          and
          operating expenses related to maintaining the Company’s compliance with the
          Securities Exchange Act of 1934. Interest expense for the years ended September
          30, 2004 and 2003 was approximately $2,100 in each respective year. Included
          in
          interest expense for Fiscal 2004 and 2003 is approximately $2,100 and $41,000
          in
          imputed interest calculated as a result of the respective noteholders agreeing
          to discontinue their rights to interest subsequent to July 31,
          2002.
  The
          Company’s expenditures consist solely of items necessary to comply with the
          Company’s periodic reporting obligations under the Securities Exchange Act of
          1934 and are not necessarily reflective of what may be expected in future
          periods when the Company either commences more extensive business operations
          or
          acquires another operating entity through either acquisition or
          merger.
  Year
          ended September 30, 2003 compared to Year ended September 30,
          2002
  General
          and administrative expenses for the years ended September 30, 2002 and
          2001 were
          approximately $60,000 and $59,000, respectively. The principal component
          of
          these expenditures was the accrual of interest on $400,000 in outstanding
          notes
          payable. Interest expense for the years ended September 30, 2003 and 2002
          was
          approximately $41,000 and $51,500, respectively. Included in interest expense
          is
          approximately $41,000 and $8,585 in imputed interest calculated as a result
          of
          the respective noteholders agreeing to discontinue their rights to interest
          subsequent to July 31, 2002.
  The
          Company’s expenditures consist solely of items necessary to comply with the
          Company’s periodic reporting obligations under the Securities Exchange Act of
          1934 and are not necessarily reflective of what may be expected in future
          periods when the Company either commences more extensive business operations
          or
          acquires another operating entity through either acquisition or
          merger.
  
 32
 
 
  **Liquidity
          and Capital Resources**
  On
          or
          about May 2, 2005, the Company sold an aggregate 83,334 post-reverse split
          shares of unregistered, restricted common stock (2,500,000 pre-reverse
          split
          shares) for cash proceeds of approximately $85,000 to three (3) separate
          individuals, including 4,933 post-reverse split shares to the Company’s former
          President. The Company relied upon Section 4(2) of the Securities Act of
          1933,
          as amended, for an exemption from registration of these shares and no
          underwriter was used in this transaction. The Company granted “piggy-back”
          registration rights to the holders of the shares of common stock which
          would
          entitle a holder to request that the Company register the common stock
          if the
          Company files a registration statement at any time prior to three years
          from the
          date the Company sold such shares of common stock. The Company has agreed
          to
          keep such registration statement current for up to 270 days. The Company
          has
          agreed to pay all expenses associated with any registration of the common
          stock
          except any underwriter's commissions or fees or any fees of others employed
          by a
          selling shareholder, including attorneys fees, which shall be the responsibility
          of the selling shareholder.
  Cash
          used
          by operating activities for the nine months ended June 30, 2005 and for
          each of
          the respective years ended September 30, 2004 and 2003 was approximately
          $59,000, $9,800 and $19,000, respectively. These cash requirements have
          been
          provided by either the proceeds from the May 2005 stock sale or advances
          from
          the Company’s former Chief Executive Officer. For all periods prior to October
          1, 2001, these advances have been treated as additional paid-in capital.
          Commencing October 1, 2001, the Company’s former Chief Executive Officer made
          these advances as working capital advances which were repayable upon demand
          at
          some undesignated future date and were non-interest bearing. In June 2005,
          concurrent with the May 2005 equity sale transaction and the July 2005
          reverse
          acquisition transaction with IsoRay Medical, the Company’s former Chief
          Executive Officer forgave the repayment of these advances and the Company
          recognized the forgiveness as additional contributed capital in the Company’s
          financial statements.
  **Going
          Concern Issues**
  IsoRay
          is
          a development stage enterprise, and as such, has a limited operating history
          and
          its future success is subject to the expenses, risks and uncertainties
          frequently encountered by companies in similar stages of development. These
          potential risks include failure to acquire adequate financing to fund further
          development of its products; failure to obtain and operate a production
          facility; failure to successfully create a market for its products; and
          other
          risks and uncertainties.
  Management’s
          plans to raise additional financing include the sale of additional equity
          or
          borrowings. Management expects to obtain the necessary financing, however,
          no
          assurance can be given that such financing will be completed on terms acceptable
          to the Company. If the Company is not able to obtain additional financing,
          the
          development of the Company’s products could be delayed or suspended.
  **Inflation**
  Inflation
          and changing prices are not anticipated to have a significant impact on
          the
          future operations of the Company.
  **ITEM
          7 - FINANCIAL STATEMENTS**
  The
          required accompanying financial statements begin on page F-1 of this
          document.
  **ITEM
          8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
          DISCLOSURE**
  None.
  
 33
 
 
  **ITEM
          8A - CONTROLS AND PROCEDURES**
  As
          required by Rule 13a-15 under the Exchange Act, within the 90 days prior
          to the
          filing date of this report, the Company carried out an evaluation of the
          effectiveness of the design and operation of the Company's disclosure controls
          and procedures. This evaluation was carried out under the supervision and
          with
          the participation of the Company's management, including the Company's
          Chief
          Executive Officer and Chief Financial Officer. Based upon that evaluation,
          the
          Company's Chief Executive Officer and Chief Financial Officer concluded
          that the
          Company's disclosure controls and procedures are effective. There have
          been no
          significant changes in the Company's internal control over financial reporting
          or in other factors, which could significantly affect internal control
          over
          financial reporting subsequent to the date the Company carried out its
          evaluation.
  Disclosure
          controls and procedures are controls and other procedures that are designed
          to
          ensure that information required to be disclosed in Company reports filed
          or
          submitted under the Exchange Act is recorded, processed, summarized and
          reported, within the time periods specified in the Securities and Exchange
          Commission's rules and forms. Disclosure controls and procedures include,
          without limitation, controls and procedures designed to ensure that information
          required to be disclosed in Company reports filed under the Exchange Act
          is
          accumulated and communicated to management, including the Company's Chief
          Executive Officer and Chief Financial Officer as appropriate, to allow
          timely
          decisions regarding required disclosure.
  **PART
          III**
  **ITEM
          9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
          WITH SECTION 16(a) OF THE EXCHANGE ACT**
  In
          conjunction with the Merger, and effective as of July 28, 2005 (the closing
          date
          of the Merger), Thomas Scallen resigned from his positions as Chief Executive
          Officer and Chairman of the Board, Philip Rogers resigned from his position
          as
          President and a director, and Wally Bietak resigned from his position as
          a
          director of the Registrant.
  Effective
          as of July 28, 2005, Roger Girard and David Swanberg were appointed as
          directors
          by the resigning Board, and, also effective as of July 28, 2005, they appointed
          Robert Kauffman, Thomas LaVoy and Stephen Boatwright to fill the remaining
          three
          vacant Board positions. The Board has established an Audit Committee consisting
          of Thomas LaVoy (Chairman) and Robert Kauffman. No other committees have
          been
          formed.
  The
          Audit
          Committee is responsible for assisting the Board of Directors in monitoring
          and
          oversight of (1) the integrity of the Company's financial statements and
          its
          systems of internal accounting and financial controls and (2) the independence
          and performance of the Company's independent auditors. The Board of Directors
          has determined that Mr. LaVoy and Mr. Kauffman are each an "audit committee
          financial expert" as defined in Item 401 of Regulation S-B promulgated
          by the
          Securities and Exchange Commission, and are each independent. The Board's
          conclusions regarding the qualifications of Mr. LaVoy as an audit committee
          financial expert were based on his service as a chief financial officer
          of a
          public company, his experience as a certified public accountant and his
          degree
          in accounting. The Board's conclusions regarding the qualifications of
          Mr.
          Kauffman as an audit committee financial expert were based on his service
          as a
          chief executive officer of multiple public companies, his active supervision
          of
          the principal financial and accounting officers of the public companies
          for
          which he served as chief executive officer, and his M.B.A. in
          Finance.
  Further
          information about the new Board members may be found below.
  Effective
          as of July 28, 2005, Roger Girard was appointed as Chief Executive Officer
          and
          President of the Registrant and Michael Dunlop was appointed as Chief Financial
          Officer and Treasurer of the Company. Also effective July 28, 2005, John
          Hrobsky
          was appointed Vice President, Sales and Marketing and David Swanberg was
          appointed Secretary and Vice President-Operations. Further information
          about
          these officers may be found below.
  
 34
 
 
  The
          Company entered into an employment agreement with Roger Girard, its Chief
          Executive Officer, effective October 6, 2005 (the "Girard Agreement").
          The term
          of the Girard Agreement is through October 6, 2009, and will automatically
          extend for an additional one year term on each anniversary date unless
          the term
          is modified or terminated in accordance with the terms of the Girard Agreement
          at least ninety days prior to a given anniversary date. The Girard Agreement
          provides for a base salary of $180,000, an automatic increase to $220,000
          effective January 1, 2006, and an increase to $300,000 effective July 1,
          2006 if
          certain performance goals set by the Board of Directors are met. Mr. Girard
          is
          also entitled to participate in any benefit plans provided to key executives
          of
          the Company, and to a bonus if certain performance goals set by the Board
          of
          Directors are met. These performance goals have not yet been set by the
          Board.
          The Registrant has not entered into employment agreements with any other
          officers as of the date of this filing.
  The
          directors and executive officers serving the Company are as
          follows:
  Name
                
                Age
                
                Position
                    HeldRoger
                    Girard
                
                
                62
                
                
                Chairman,
                    President, CEOJohn
                    Hrobsky
                
                
                58
                
                
                Vice
                    President-MarketingMichael
                    Dunlop
                
                
                53
                
                
                Chief
                    Financial Officer-TreasurerDavid
                    J. Swanberg
                
                
                49
                
                
                Vice
                    President-OperationsCorporate
                    Secretary, DirectorRobert
                    Kauffman
                
                
                64
                
                
                DirectorThomas
                    LaVoy
                
                
                45
                
                
                DirectorStephen
                    Boatwright
                
                
                41
                
                
                Director
 
 Roger
          Girard - In addition to serving as President, Chairman and CEO for the
          Registrant, Mr. Girard is currently the CEO, President and Chairman of
          the Board
          of IsoRay Medical, Inc., and has served in these positions since the formation
          of IsoRay Medical, Inc. Mr. Girard was CEO and Chairman of IsoRay Medical's
          predecessor company from August of 2003 until October 1, 2004. Mr. Girard
          has
          been actively involved in the management and the development of the management
          team at IsoRay Medical, and his experienced leadership has helped drive
          IsoRay's
          development to date. From June 1998 until August of 2003, Mr. Girard served
          as
          President of Strategic Financial Services, a company designed to help wealthy
          individuals and companies with strategic planning and financial strategy.
          Mr.
          Girard also served as the managing partner for the Northwest office of
          Capital
          Consortium during this time. Mr. Girard has knowledge, experience and
          connections to private, institutional and public sources of capital and
          is
          experienced in managing and designing capital structures for business
          organizations as well as organizing and managing the manufacturing process,
          distribution, sales, and marketing, based on his 35 years of
          experience.
  John
          Hrobsky - Prior to joining IsoRay's predecessor company as Executive Vice
          President of Sales and Marketing in 2004, Mr. Hrobsky was President, CEO
          and a
          director of Advanced Cochlear Systems, positions he held beginning in 2001.
          From
          1999 to 2001, Mr. Hrobsky served as President, CEO and a director of Zaxis
          International, Inc., a biotechnology company. Prior to 1999, Mr. Hrobsky
          served
          as a senior executive with a number of biotech and medical device companies.
          Mr.
          Hrobsky's sales and marketing experience with medical devices includes
          a device
          for restoring neuro-control after spinal cord injury, the worldwide leading
          cochlear implant as well as various radiology, imaging and diagnostic equipment
          products. Notably, Mr. Hrobsky served as Vice President of Sales for Cochlear
          Corporation, the U.S. subsidiary of Cochlear Ltd., an Australian based
          manufacturer of cochlear implants where he was responsible for its introduction
          to the markets in the US, Canada and South America. Cochlear Ltd. is the
          world's
          leading provider of cochlear implants commanding approximately 60% of the
          market. Mr. Hrobsky earned a Bachelor of Science in Medical Technology
          in 1971
          from the University of Wisconsin - Eau Claire, and has earned credits toward
          an
          MBA from Regis University, Denver, CO.
  Michael
          Dunlop - Mr. Dunlop has been responsible for IsoRay Medical and its predecessor
          companies' financial and accounting operations and administrative services
          in
          his position as CFO since April 2001. Mr. Dunlop has over 18 years of financial
          and administrative experience in the healthcare industry. As Director of
          Contracting and Marketing for Community Choice, PHCO, an organized healthcare
          delivery system, from October 1997 to December 2003, he assisted in developing
          the strategic direction and business plan of the PHCO, negotiated and maintained
          contractual relations with state-wide major health insurance plans, increased
          compensation for 80+ independent providers and 6 area hospitals, and enhanced
          PHCO provider membership through development of programs that lowered clinic
          and
          hospital operating costs. He was granted the Pentad Industry Council,
          Chelan-Douglas Counties' 'Employer of the Year' award in 1996, while
          administrator of Lake Chelan Clinic. Mr. Dunlop holds an M.B.A. from California
          State University and B.M. Education from Walla Walla College.
  
 35
 
 
  David
          J.
          Swanberg - Mr. Swanberg has more than 22 years experience in engineering
          and
          materials science, nuclear waste and chemical processing, aerospace materials
          and processes, and environmental technology development and environmental
          compliance. Until January 2004, Mr. Swanberg was employed full time as
          Sr.
          Chemical/Environmental Engineer for Science Applications International
          Corporation working on a variety of projects including nuclear waste research
          and development. Mr. Swanberg joined IsoRay Medical's predecessor company
          in
          March of 1999 and has held management positions in the IsoRay companies
          since
          2000. He has been instrumental in development of IsoRay Medical's initial
          product, the Cs-131 brachytherapy seed, including interfaces with technical,
          regulatory, and quality assurance requirements. With IsoRay Medical and
          its
          predecessor companies, he has managed the development and production of
          radioactive seeds to support testing to meet NRC and FDA requirements,
          provided
          technical guidance for characterization of the IsoRay seed to meet AAPM
          Task
          Group 43 protocols, and coordinated production and testing of non-radioactive
          seeds to conform to ISO standards for brachytherapy devices. He is President
          of
          the Nuclear Medicine Research Council. He holds an MS in Chemical Engineering,
          is a licensed Chemical Engineer, and a certified Level II Radiation
          Worker.
  Robert
          Kauffman - Mr. Kauffman has served as Chief Executive Officer and Chairman
          of
          the Board of Alanco Technologies, Inc. (NASDAQ: ALAN), an Arizona-based
          information technology company, since July 1, 1998. Mr. Kauffman was formerly
          President and Chief Executive Officer of NASDAQ-listed Photocomm, Inc.,
          from
          1988 until 1997 (since renamed Kyocera Solar, Inc.). Photocomm was the
          nation's
          largest publicly owned manufacturer and marketer of wireless solar electric
          power systems with annual revenues in excess of $35 million. Prior to Photocomm,
          Mr. Kauffman was a senior executive of the Atlantic Richfield Company (ARCO)
          whose varied responsibilities included Senior Vice President of ARCO Solar,
          Inc., President of ARCO Plastics Company and Vice President of ARCO Chemical
          Company. Mr. Kauffman earned an M.B.A. in Finance at the Wharton School
          of the
          University of Pennsylvania, and holds a B.S. in Chemical Engineering from
          Lafayette College, Easton, Pennsylvania.
  Thomas
          LaVoy - Mr. LaVoy has served as Chief Financial Officer of SuperShuttle
          International, Inc., since July 1997 and as Secretary since March 1998.
          He has
          also served as a director of Alanco Technologies, Inc. (NASDAQ: ALAN) since
          1998. From September 1987 to February 1997, Mr. LaVoy served as Chief Financial
          Officer of NASDAQ-listed Photocomm, Inc. Mr. LaVoy was a Certified Public
          Accountant with the firm of KPMG Peat Marwick from 1980 to 1983. Mr. LaVoy
          has a
          Bachelor of Science degree in Accounting from St. Cloud University, Minnesota,
          and is a Certified Public Accountant.
  Stephen
          Boatwright - Mr. Boatwright has been a member of Keller Rohrback, PLC in
          Phoenix, Arizona since January 2005. From 1997 through January 2005, Mr.
          Boatwright was a partner at Gammage & Burnham, PLC, also in Phoenix,
          Arizona. Throughout his career, he has provided legal counsel to both private
          and public companies in many diverse industries. In recent years, Mr.
          Boatwright's legal practice has focused on representing technology,
          biotechnology, life science and medical device companies for their securities,
          corporate and intellectual property licensing needs. Mr. Boatwright earned
          both
          a J.D. and an M.B.A. from the University of Texas at Austin, and holds
          a B.A. in
          Philosophy from Wheaton College.
  Significant
          Employees
  Certain
          significant employees of our subsidiary, IsoRay Medical, Inc., and their
          respective ages as of the date of this report are set forth in the table
          below.
          Also provided is a brief description of the experience of each significant
          employee during the past five years.
  
 36
 
 
 Name
                
                Age
                
                Position
                    Held and TenureLane
                    Bray
                
                
                77
                
                
                ChemistGarrett
                    Brown
                
                
                42
                
                
                Chief
                    Technology OfficerKeith
                    Welsch
                
                
                58
                
                
                Chief
                    Quality Officer
  Lane
          Bray
          - Mr. Bray is known nationally and internationally as a technical expert
          in
          separations, recovery, and purification of isotopes and is a noted authority
          in
          the use of cesium and strontium ion exchange for Department of Energy's
          West
          Valley and Hanford nuclear waste cleanup efforts. In 2000, Mr. Bray received
          the
          'Radiation Science and Technology' award from the American Nuclear Society.
          Mr.
          Bray has authored or co-authored over 110 research publications, 12 articles
          for
          9 technical books, and holds 24 U.S. and foreign patents. Mr. Bray patented
          the
          USDOE/PNNL process for purifying medical grade Yttrium-90 that was successfully
          commercialized in 1999. Mr. Bray also recently invented and patented the
          proprietary isotope separation and purification process that is assigned
          to
          IsoRay. Mr. Bray was elected 'Tri-Citian of the Year' in 1988, nominated
          for
          'Engineer of the Year' by the American Nuclear Society in 1995, and was
          elected
          'Chemist of the Year for 1997' by the American Chemical Society, Eastern
          Washington Section. Mr. Bray retired from the Pacific Northwest National
          Laboratory in 1998. Since retiring in 1998, Mr. Bray worked part time for
          PNNL
          on special projects until devoting all of his efforts to IsoRay in 2004.
          Mr.
          Bray has been a Washington State Legislator, a Richland City Councilman,
          and a
          Mayor of Richland. Mr. Bray has a B.A. in Chemistry from Lake Forest
          College.
  Garrett
          Brown - Dr. Brown was Manager of Radiochemistry - Hot Cell Operations for
          International Isotopes, Inc., a major radiopharmaceutical and medical device
          startup company, from January 1998 until May 1999 and was instrumental
          in
          bringing a new brachytherapy seed implant device to commercialization.
          Dr.
          Brown’s responsibilities included hands-on radiological work in fume hoods,
          glove boxes and remote manipulator hot cells, process definition, research,
          development, installation, optimization, waste minimization, procedure
          documentation, facility design and training. Dr. Brown also served as the
          technical interface to executive management for business development,
          shipping/receiving, QA/QC, facilities and marketing/sales. Prior to that,
          Dr.
          Brown, as a Senior Research Scientist at the Pacific Northwest National
          Laboratory, was responsible for the weekly production of multi-Curie quantities
          of medical grade Y-90, and research programs to develop high tech sorbents
          for
          separation of Cs-137, Sr-90 and Tc-99 from high-level radioactive wastes
          stored
          at the Hanford Nuclear Reservation. From May 1999 to the present, Dr. Brown
          has
          been a technical consultant with GNB Technical Consultants. Dr. Brown has
          co-authored numerous technical publications in the field. Dr. Brown has
          a Ph.D.
          in Analytical Chemistry and BS in Chemistry, cum laude. He has served as
          IsoRay
          Medical's Chief Technical Officer since May of 2000. In March 2004, Dr.
          Brown
          was certified as a Radiological Safety Officer.
  Keith
          Welsch - Mr. Welsch is a quality control professional with experience in
          a wide
          range of organizations and disciplines including the nuclear, aerospace,
          environmental restoration, construction, tubing, steel and aluminum industries.
          Mr. Welsch managed the registration of a plant to ISO 9002:1994 and subsequently
          transitioned the facility to ISO 9001:2000 and conducted continuous improvement
          actions. These included statistical process control, six sigma, lean
          manufacturing, and total preventive maintenance programs. Mr. Welsch's
          other
          significant achievements include facilitation of quality improvement and
          stand
          down teams, innovative education training manager, management of records
          review
          for two nuclear sites, management of audit programs and corrective-action
          systems, and teaching safety, technical, and quality courses. He has earned
          the
          Certified Quality Auditor, Certified Quality Technician and Certified Quality
          Improvement Associate certifications from the American Society for Quality.
          Prior to joining IsoRay in 2004, Mr. Welsch served as Quality Assurance
          Manager
          for Kaiser Aluminum Products of Richland, Washington since 1997. Mr. Welsch
          received a BA in Business Administration from Washington State
          University.
  The
          Company’s Directors, as named above, will serve until the next annual meeting of
          the Company’s stockholders or until their successors are duly elected and have
          qualified. Directors will be elected for one-year terms at the annual
          stockholders meeting. Officers will hold their positions at the pleasure
          of the
          board of directors, absent any employment agreement, of which none currently
          exists or is contemplated. There is no arrangement or understanding between
          any
          of the directors or officers of the Company and any other person pursuant
          to
          which any director or officer was or is to be selected as a director or
          officer,
          and there is no arrangement, plan or understanding as to whether non-management
          shareholders will exercise their voting rights to continue to elect the
          current
          directors to the Company’s board. There are also no arrangements, agreements or
          understandings between non-management shareholders that may directly or
          indirectly participate in or influence the management of the Company’s
          affairs.
  
 37
 
 
  There
          are
          no agreements or understandings for any officer or director to resign at
          the
          request of another person, and none of the officers or directors are acting
          on
          behalf of, or will act at the direction of, any other person.
  Section
          16(a) Beneficial Ownership Reporting Compliance
  Section
          16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires
          the
          Company’s directors and executive officers, and persons who beneficially own
          more than ten percent of a registered class of our equity securities, to
          file
          with the Securities and Exchange Commission (the "Commission") initial
          reports
          of beneficial ownership and reports of changes in beneficial ownership
          of our
          Common Stock. The rules promulgated by the Commission under Section 16(a)
          of the
          Exchange Act require those persons to furnish us with copies of all reports
          filed with the Commission pursuant to Section 16(a). The information in
          this
          section is based solely upon a review of Forms 3, Forms 4, and Forms 5
          received
          by us.
  During
          the transition period ended June 30, 2005, Philip Rogers, our former President
          and a former director, failed to file one Form 4. To our knowledge, we
          believe
          that no other reports were required and not filed during the transition
          period
          ended June 30, 2005.
  Code
          of Ethics
  We
          have
          adopted a Code of Conduct and Ethics that applies to all of our officers,
          directors and employees and a separate Code of Ethics for Chief Executive
          Officer and Senior Financial Officers that supplements our Code of Conduct
          and
          Ethics. The Code of Conduct and Ethics is filed as Exhibit 14.1 to this
          Transition Report, and the Code of Ethics for Chief Executive Officer and
          Senior
          Financial Officers is filed as Exhibit 14.2 to this Transition Report.
          Each of
          these policies comprises written standards that are reasonably designed
          to deter
          wrongdoing and to promote the behavior described in Item 406 of Regulation
          S-B
          promulgated by the Securities and Exchange Commission. Each of these policies
          was adopted after the end of the transition period ended June 30,
          2005.
  **ITEM
          10 - EXECUTIVE COMPENSATION**
  The
          following summary compensation table sets forth information concerning
          compensation for services rendered in all capacities during our past three
          fiscal years awarded to, earned by or paid to our former Chief Executive
          Officer. No executive officers, directors or employees of the Company as
          of June
          30, 2005, other than our former Chief Executive Officer, received compensation
          during the transition period ended June 30, 2005 or either of the respective
          years ended December 31, 2004 or 2003.
  **Long-Term
                    Compensation Awards****Name
                    and Principal Position**
                
                **Fiscal
                    Year****(1)**
                
                **Annual
                    Compensation Salary**
                
                **Restricted
                    Stock Awards**
                
                **Securities
                    Underlying Options**
                
                **All
                    Other Compensation**Thomas
                    Scallen, Former Chief Executive Officer(2)
                
                
                2005
                
                
                —
                
                
                —
                
                
                —
                
                $
                50,000
                (3)2004
                
                
                —
                
                $
                7,871
                (4)
                
                —
                
                
                —2003
                
                
                —
                
                
                —
                
                
                —
                
                
                —
 
 
 38
 
 
 (1)
                Fiscal
                    year 2005 consisted of the period from October 1, 2004 through
                    June 30,
                    2005; fiscal year 2004 consisted of the year ended September
                    20, 3004; and
                    fiscal year 2003 consisted of the year ended September 30,
                    2003.
 (2)
                Mr.
                    Scallen served as our Chief Executive Officer during the listed
                    fiscal
                    years and until his resignation effective July 28,
                    2005.
 (3)
                Represents
                    a $50,000 cash payment in June 2005 to Mr. Scallen in settlement
                    of all
                    accrued but unpaid compensation.
 (4)
                Represents
                    the issuance of 787,100 shares of restricted common stock as
                    compensation
                    associated with the conversion of the outstanding notes payable
                    and
                    accrued interest payable. This transaction was valued at approximately
                    $7,781, which was equal to the "fair value" of the Company's
                    common stock
                    on the conversion date. The Company relied upon Section 4(2)
                    of the
                    Securities Act of 1933, as amended, for an exemption from registration
                    for
                    this issuance.
   Director
          Compensation
  The
          Company’s Directors have not received any cash compensation during the nine
          months ended June 30, 2005 or either of the respective years ended September
          30,
          2004 or 2003.
  Since
          July 28, 2005, we have paid our directors who are not employees of the
          Company a
          director’s fee of $1,000 per meeting attended, plus expenses. We have also
          granted each non-employee director immediately exercisable options to purchase
          100,000 shares of our common stock. For the current non-employee members
          of the
          Board, these options were granted on July 28, 2005 with an exercise price
          of
          $2.00 per share. Our non-employee directors as of the date of this filing
          were
          Robert Kauffman, Thomas LaVoy and Stephen Boatwright.
  **ITEM
          11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT**
  The
          following tables set forth certain information regarding the beneficial
          ownership of the Company's common stock and preferred stock as of September
          26,
          2005 for (a) each person known by the Company to be a beneficial owner
          of five
          percent or more of the outstanding common or preferred stock of the Company,
          (b)
          each executive officer, director and nominee for director of the Company,
          and
          (c) directors and executive officers of the Company as a group. As of September
          26, 2005, the Company had 8,947,972 shares of common stock and 1,304,988
          shares
          of preferred stock outstanding.
  
  
 39
 
 **Common
          Stock Share Ownership as of September 26, 2005**
  Name
                      and Address of Beneficial Owner(1)
                  
                  Amount
                      of Common Shares Owned
                  
                  Derivative
                      Securities Exercisable or Convertible Within 60 Days of September
                      26,
                      2005
                  
                  Total
                      Common Shares Beneficially Owned
                  
                  Percent
                      of Common Shares Owned(2)Roger
                      Girard
                    Chief
                      Executive Officer, President and Chairman
                  
                  
                  338,462
                  
                  
                  513,841
                  
                  
                  852,303
                  
                  
                  9.01
                  %Michael
                      Dunlop
                    Chief
                      Financial Officer
                  
                  
                  136,619
                  
                  
                  150,000
                  
                  
                  286,619
                  
                  
                  3.15
                  %John
                      Hrobsky
                    Vice
                      President
                  
                  
                  4,296
                  
                  
                  281,349
                  
                  
                  285,645
                  
                  
                  3.09
                  %David
                      Swanberg
                    Vice
                      President and Director
                  
                  
                  284,609
                  
                  
                  150,000
                  
                  
                  434,609
                  
                  
                  4.78
                  %Robert
                      Kauffman
                    Director
                  
                  
                  43,802
                  
                  
                  100,000
                  
                  
                  143,802
                  
                  
                  1.59
                  %Thomas
                      LaVoy
                    Director
                  
                  
                  8,423
                  
                  
                  100,000
                  
                  
                  108,423
                  
                  
                  1.20
                  %Stephen
                      Boatwright
                    Director
                  
                  
                  —
                  
                  
                  184,236
                  
                  
                  184,236
                  
                  
                  2.01
                  %Thomas
                      K. Scallen
                    Former
                      Chief Executive Officer(3)
                  
                  
                  329,942
                  
                  
                  —
                  
                  
                  329,942
                  
                  
                  3.69
                  %Lawrence
                      Family Trust(4)
                  
                  
                  888,529
                  
                  
                  —
                  
                  
                  888,529
                  
                  
                  9.95
                  %Donald
                      Segna
                  
                  
                  511,214
                  
                  
                  —
                  
                  
                  511,214
                  
                  
                  5.72
                  %Anthony
                      Silverman(5)
                  
                  
                  594,771
                  
                  
                  139,391
                  
                  
                  734,162
                  
                  
                  8.08
                  %All
                      Officers and Directors as a group (7 persons)
                  
                  
                  816,213
                  
                  
                  1,478,726
                  
                  
                  2,294,939
                  
                  
                  22.01
                  %
  (1)
                Except
                    as otherwise noted, the address for each of these individuals
                    is c/o
                    IsoRay, Inc., 350 Hills St., Suite 106, Richland, Washington
                    99354.
 (2)
                Percentage
                    ownership is based on 8,947,972 shares of Common Stock outstanding
                    on
                    September 26, 2005. Shares of Common Stock subject to stock options,
                    warrants or convertible debentures which are currently
                    exercisable/convertible or will become exercisable/convertible
                    within 60
                    days after September 26, 2005 are deemed outstanding for computing
                    the
                    percentage ownership of the person or group holding such options,
                    but are
                    not deemed outstanding for computing the percentage ownership
                    of any other
                    person or group.
 (3)
                Mr.
                    Scallen's address is 4701 IDS Center, Minneapolis, MN
                    55402.
 (4)
                The
                    address of the Lawrence Family Trust is 285 Dondero Way, San
                    Jose,
                    California 95119.
 (5)
                Mr.
                    Silverman's address is 2747 Paradise Road, #903, Las Vegas, Nevada
                    98109.
                    27,376 of the shares of common stock and 24,067 of the derivative
                    securities beneficially owned by Mr. Silverman are held of record
                    by
                    Katsinam Partners, LP, an entity of which Mr. Silverman is a
                    member of the
                    general partner.
 
  
 40
 
 **Preferred
          Stock Share Ownership as of September 26, 2005**
  Name
                    and Address of Beneficial Owner(1)
                
                Amount
                    of Preferred Shares Owned
                
                Options
                    or Warrants Exercisable Within 60 Days of September 26,
                    2005
                
                Total
                    Preferred Shares Beneficially Owned
                
                Percent
                    of Preferred Shares Owned(2)Lebowitz
                    Living Trust(3)
                
                
                142,819
                
                
                —
                
                
                142,819
                
                
                10.90
                %David
                    Swanberg
                  Vice
                    President and Director
                
                
                14,218
                
                
                —
                
                
                14,218
                
                
                1.09
                %All
                    Officers and Directors as a group (7 persons)(4)
                
                
                14,218
                
                
                —
                
                
                14,218
                
                
                1.09
                %
  (1)
                Except
                    as otherwise noted, the address for each of these individuals
                    is c/o
                    IsoRay, Inc., 350 Hills St., Suite 106, Richland, Washington
                    99354.
 (2)
                Percentage
                    ownership is based on 1,304,988 shares of Preferred Stock outstanding
                    on
                    September 26, 2005. Shares of Preferred Stock subject to stock
                    options or
                    warrants which are currently exercisable or will become exercisable
                    within
                    60 days after September 26, 2005 are deemed outstanding for computing
                    the
                    percentage ownership of the person or group holding such options,
                    but are
                    not deemed outstanding for computing the percentage ownership
                    of any other
                    person or group.
 (3)
                The
                    address of the Lebowitz Living Trust is 16123 Greenwood Road,
                    Monte
                    Sereno, California 95030.
 (4)
                No
                    officers or directors other than Mr. Swanberg beneficially own
                    shares of
                    Preferred Stock.
  **ITEM
          12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
  Through
          June 30, 2005, the Company’s former Chief Executive Officer, Thomas K. Scallen,
          advanced the Company an aggregate of approximately $44,500 to support
          operations, settle outstanding trade accounts payable and provide working
          capital. The advance was repayable upon demand and is non-interest bearing
          and
          is unsecured. Effective June 30, 2005, with the anticipation of the consummation
          of the reverse acquisition transaction with IsoRay Medical, Inc., as previously
          discussed, these advances were forgiven and reclassified as additional
          paid-in
          capital in the accompanying financial statements as of that date.
  Through
          December 31, 2004, the Company owed the Company's Chief Executive Officer,
          Thomas K. Scallen, approximately $354,500 for cumulative accrued salary.
          During
          the quarter ended March 31, 2005, the Company’s former Chief Executive Officer
          forgave approximately $304,500 in accrued salary for prior periods.
  Mr.
          Stephen Boatwright, a Company director, has been actively involved in providing
          various legal services to the Company, IsoRay Medical and IsoRay Medical's
          predecessors through the law firms of Gammage and Burnham and Keller Rohrback,
          PLC. From September 2004 until January 2005, Gammage and Burnham received
          approximately $141,000 as payment for legal services performed for IsoRay
          Medical and its predecessors. From February 2005 though June 30, 2005,
          IsoRay
          Medical, Inc. paid Keller Rohrback, PLC approximately $144,000 for legal
          services.
  IsoRay
          Medical's patent rights to its Cesium-131 process were acquired from Lane
          Bray,
          a shareholder of the Company, and are subject to a 1% royalty on gross
          profits
          and certain contractual restrictions. Additionally, when IsoRay Medical
          attains
          a 15% domestic market share, it will pay to the Lawrence Family Trust,
          a major
          shareholder of the Company, 1% of the "Factory Price" with a minimum annual
          royalty of $4,000, pursuant to an agreement with Don Lawrence.
  On
          January 16, 2005, in addition to certain other shareholders, the following
          officers and directors of the Company were awarded shares of common stock
          for
          guaranteeing a loan with the Benton Franklin Economic Development District
          ("BFEDD") in the amount of $230,000, which was funded in December 2004,
          and a
          line of credit with Columbia River Bank in the amount of $395,000: Michael
          Dunlop guaranteed $15,000 of the BFEDD loan and $30,000 of the Columbia
          River
          Bank line of credit, for which he received 12,888 post-merger shares; Roger
          Girard guaranteed $20,000 of the BFEDD loan, for which he received 5,728
          post-merger shares; John Hrobsky guaranteed $15,000 of the Columbia River
          Bank
          line of credit, for which he received 4,296 post-merger shares; and David
          Swanberg guaranteed $30,000 of the Columbia River Bank line of credit,
          for which
          he received 8,592 post-merger shares.
  
 41
 
 
  **ITEM
          13 - EXHIBITS AND REPORTS ON FORM 8-K**
  Exhibits2.1
                
                Merger
                    Agreement dated as of May 27, 2005, by and among Century Park
                    Pictures
                    Corporation, Century Park Transitory Subsidiary, Inc., certain
                    shareholders and IsoRay Medical, Inc. incorporated by reference
                    to the
                    Form 8-K filed on August 3, 2005.2.2
                
                Certificate
                    of Merger, filed with the Delaware Secretary of State on July
                    28, 2005
                    incorporated by reference to the Form 8-K filed on August 3,
                    2005.3.1
                
                Articles
                    of Incorporation and By-Laws are incorporated by reference to
                    the Exhibits
                    to the Registrant's Registration Statement of September 15,
                    19833.2
                
                Certificate
                    of Designation of Rights, Preferences and Privileges of Series
                    A and B
                    Convertible Preferred Stock, filed with the Minnesota Secretary
                    of State
                    on June 29, 2005 incorporated by reference to the Form 8-K filed
                    on August
                    3, 2005.3.3
                
                Restated
                    and Amended Articles of Incorporation, filed herewith.4.1
                
                Rights
                    of warrant holders set forth in Exhibits to Registration No.
                    33-58546,
                    effective April 12, 1993, incorporated by this
                    reference.4.2
                
                Form
                    of Lock-Up Agreement for Certain IsoRay Medical, Inc. Shareholders
                    incorporated by reference to the Form 8-K filed on August 3,
                    2005.4.3
                
                Form
                    of Lock-Up Agreement for Anthony Silverman incorporated by reference
                    to
                    the Form 8-K filed on August 3, 2005.4.4
                
                Form
                    of Registration Rights Agreement among IsoRay Medical, Inc.,
                    Century Park
                    Pictures Corporation and the other signatories thereto incorporated
                    by
                    reference to the Form 8-K filed on August 3, 2005.4.5
                
                Form
                    of Escrow Agreement among Century Park Pictures Corporation,
                    IsoRay
                    Medical, Inc. and Anthony Silverman incorporated by reference
                    to the Form
                    8-K filed on August 3, 2005.4.6
                
                Form
                    of Escrow Agreement among Century Park Pictures Corporation,
                    IsoRay
                    Medical, Inc. and Thomas Scallen incorporated by reference to
                    the Form 8-K
                    filed on August 3, 2005.4.7
                
                Amended
                    and Restated 2005 Stock Option Plan incorporated by reference
                    to the Form
                    S-8 filed on August 19, 2005.4.8
                
                Amended
                    and Restated 2005 Employee Stock Option Plan incorporated by
                    reference to
                    the Form S-8 filed on August 19, 2005.10
                
                Stock
                    Purchase Agreement, dated July 29, 1993 between registrant and
                    International Broadcasting Corporation, International Theatres
                    Corporation
                    and National Westminster Bank USA attached as an Exhibit to Registrant’s
                    Report on Form 8-K is incorporated by this reference.14.1
                
                Code
                    of Conduct and Ethics, filed
                    herewith.
 
 42
 
 
  14.2
                Code
                    of Ethics for Chief Executive Officer and Senior Financial Officers,
                    filed
                    herewith.21.1
                Subsidiaries
                    of the Registrant, filed herewith.31.1
                Certification
                    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief
                    Executive Officer, filed herewith.31.2
                Certification
                    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief
                    Financial Officer, filed herewith.32.1
                Certifications
                    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
                    herewith.
 Reports
          on Form 8-K
  On
          June
          6, 2005, the Company filed a Current Report on Form 8-K announcing its
          entry
          into a Merger Agreement, dated May 27, 2005, by and among the Company,
          Century
          Park Transitory Subsidiary, Inc., IsoRay Medical, Inc., Thomas Scallen
          and
          Anthony Silverman.
  On
          June
          15, 2005, the Company filed a Current Report on Form 8-K announcing the
          April
          29, 2005 reverse stock split of the Company's common stock.
  On
          August
          3, 2005, the Company filed a Current Report on Form 8-K announcing the
          closing
          of the merger between the Company's wholly-owned subsidiary, Century Park
          Transitory Subsidiary, Inc. and IsoRay Medical, Inc.
  On
          August
          15, 2005, the Company filed an amended Current Report on Form 8-K/A amending
          the
          Current Report filed on August 3, 2005.
  On
          August
          17, 2005, the Company filed a Current Report on Form 8-K announcing the
          Company's new trading symbol, ISRY, for its common stock on the Pink
          Sheets.
  **ITEM
          14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES**
  The
          Company paid or accrued the following fees in each of the prior two fiscal
          years
          to its principal accountant, S. W. Hatfield, CPA of Dallas, Texas:
  Nine
                    months ended
                  June
                    30, 2005
                
                Year
                    ended
                  September
                    30, 2004
                
                Year
                    ended
                  September
                    30, 20031.Audit
                    fees
                
                $
                4,663
                
                $
                5,512
                
                $
                8,0942.Audit-related
                    fees
                
                
                —
                
                
                —
                
                
                —3.Tax
                    fees
                
                
                —
                
                
                —
                
                
                —4.All
                    other fees
                
                
                —
                
                
                —
                
                
                —Totals
                
                $
                4,663
                
                $
                5,512
                
                $
                8,094
 
 Through
          the July 2005 reverse acquisition transaction date, the Company had no
          formal
          audit committee. However, as defined in Sarbanes-Oxley Act of 2002, the
          entire
          Board of Directors was the Company’s defacto audit committee.
  In
          discharging its oversight responsibility as to the audit process, the Board
          obtained from the independent auditors a formal written statement describing
          all
          relationships between the auditors and the Company that might bear on the
          auditors’ independence. The Board discussed with the auditors any relationships
          that may impact their objectivity and independence, including fees for
          non-audit
          services, and satisfied itself as to the auditors’ independence. The Board also
          discussed with management and the independent auditors the quality and
          adequacy
          of the Company’s internal controls.
  
 43
 
 
  The
          Board
          and, solely for the period ended June 30, 2005, the recently formed Audit
          Committee, reviewed the audited financial statements of the Company as
          of and
          for the respective periods ended June 30, 2005, September 30,
          2004 and
          2003 with management and the independent auditors. Management has the sole
          ultimate responsibility for the preparation of the Company’s financial
          statements and the independent auditors have the responsibility for their
          examination of those statements.
  Based
          on
          the above-mentioned review and discussions with the independent auditors
          and
          management, the Board of Directors and Audit Committee approved the Company’s
          audited financial statements and recommended that they be included in its
          Transitional Annual Report on Form 10-KSB for the nine months ended June
          30,
          2005, for filing with the Securities and Exchange Commission.
  The
          Company’s principal accountant, S. W. Hatfield, CPA did not engage any other
          persons or firms other than the principal accountant’s full-time, permanent
          employees.
  (Remainder
          of this page left blank intentionally)
  
 
 44
  **IsoRay,
          Inc.**
 (formerly
          Century Park Pictures Corporation)
 
 **Index
          to Financial Statements**
   **Report
                      of Registered Independent Certified Public Accounting
                      Firm**
                  F-2**Financial
                      Statements**Balance
                      Sheets as of June 30, 2005, September 30, 2004 and 2003
                  F-4Statements
                      of Operations and Comprehensive Income (Loss) for the nine
                      months ended
                      June 30, 2005 and for the years ended September 30, 2004 and
                      2003
                  F-5Statement
                      of Changes in Shareholders' Equity for the nine months ended
                      June 30, 2005
                      and for the years ended September 30, 2004 and 2003
                  F-6Statements
                      of Cash Flows for the nine months ended June 30, 2005
                      and for the
                      years ended September 30, 2004 and 2003
                  F-7Notes
                      to Financial Statements
                  F-8
 
 F-1
  **REPORT
            OF REGISTERED INDEPENDENT CERTIFIED PUBLIC ACCOUNTING
            FIRM**
 
 
 Board
            of
            Directors and Stockholders
 IsoRay,
            Inc.
 (formerly
            Century Park Pictures Corporation)
 
 We
            have
            audited the accompanying balance sheets of IsoRay, Inc. (formerly Century
            Park
            Pictures Corporation) (a Minnesota corporation) as of June 30, 2005,
            September
            30, 2004 and 2003 and the related statements of operations and comprehensive
            loss, changes in shareholders' equity and cash flows for the nine months
            ended
            June 30, 2005 and for each of the years ended September 30, 2004 and
            2003,
            respectively. These financial statements are the responsibility of the
            Company's
            management. Our responsibility is to express an opinion on these financial
            statements based on our audits.
 
 We
            conducted our audits in accordance with the standards of the Public Company
            Accounting Oversight Board (United States). Those standards require that
            we plan
            and perform the audits to obtain reasonable assurance about whether the
            financial statements are free of material misstatement. An audit includes
            examining, on a test basis, evidence supporting the amounts and disclosures
            in
            the financial statements. An audit also includes assessing the accounting
            principles used and significant estimates made by management, as well
            as
            evaluating the overall financial statement presentation. We believe that
            our
            audits provide a reasonable basis for our opinion.
 
 In
            our
            opinion, the financial statements referred to above present fairly, in
            all
            material respects, the financial position of IsoRay, Inc. (formerly Century
            Park
            Pictures Corporation) as of June 30, 2005, September 30, 2004 and 2003
            and the
            results of its operations and its cash flows for the nine months ended
            June 30,
            2005 and for each of the years ended September 30, 2004 and 2003, respectively,
            in conformity with accounting principles generally accepted in the United
            States
            of America.
 
 The
            accompanying financial statements have been prepared assuming that the
            Company
            will continue as a going concern. As discussed in Note C to the financial
            statements, the Company completed a reverse acquisition transaction in
            July 2005
            with a development stage enterprise, which has yet to fully implement
            its
            business plan and develop a sustainable revenue stream. These circumstances
            create substantial doubt about the Company's ability to continue as a
            going
            concern. The financial statements do not contain any adjustments that
            might
            result from the outcome of these uncertainties.
 
 
 
 S.
            W.
            HATFIELD, CPA
 Dallas,
            Texas
 September
            16, 2005
   F-2
 
 **IsoRay,
          Inc.**
 (formerly
          Century Park Pictures Corporation)
 **Balance
          Sheets**
 June
          30,
          2005, September 30, 2004 and 2003
 
 June
                    30,2005
                
                
                September
                    30,
                  2004
                
                
                September
                    30,
                  2003**Assets****Current
                    Assets**Cash
                    on hand and in bank
                
                $
                32,587
                
                $
                —
                
                $
                —**Total
                    current assets**
                
                $
                32,587
                
                
                —
                
                
                —**Other
                    Assets**
                
                
                —
                
                
                926
                
                
                926Rent
                    deposits**Total
                    Assets**
                
                $
                32,587
                
                
                926
                
                
                926
 
 **Liabilities
          and Shareholders’ Equity (Deficit)**
 
 **Current
                    Liabilities**Notes
                    payable
                
                $
                —
                
                $
                —
                
                $
                100,000Accounts
                    payable - trade
                
                
                21,355
                
                
                395
                
                
                —Accrued
                    officer compensation
                
                
                —
                
                
                354,500
                
                
                354,500Accrued
                    interest payable
                
                
                —
                
                
                —
                
                
                73,714Other
                    accrued expenses
                
                
                —
                
                
                —
                
                
                9,027Advances
                    from shareholder
                
                
                —
                
                
                37,744
                
                
                27,887**Total
                    current liabilities**
                
                
                21,355
                
                
                392,639
                
                
                565,128
 **Commitments
          and contingencies**
 
 **Shareholders’
                    Equity (Deficit)**Preferred
                    stock — $0.001 par value6,000,000
                    shares authorized1,000,000
                    shares allocated to Series A
                
                
                —
                
                
                —
                
                
                —5,000,000
                    shares allocated to Series B
                
                
                —
                
                
                —
                
                
                —Common
                    stock — $0.001 par value.194,000,000
                    shares authorized.2,498,319,
                    2,414,985 and 2,099,554 shares
                  issued
                    and outstanding, respectively
                
                
                2,498
                
                
                2,415
                
                
                2,099Additional
                    paid-in capital
                
                
                7,003,100
                
                
                6,874,610
                
                
                6,778,194Accumulated
                    deficit
                
                
                (6,994,366
                )
                
                (7,268,738
                )
                
                (7,344,495
                )**Total
                    shareholders’ equity (deficit)**
                
                
                11,232
                
                
                (391,713
                )
                
                (564,202
                )**Total
                    Liabilities and****Shareholders’
                    Equity (Deficit)**
                
                $
                32,587
                
                $
                926
                
                $
                926
  The
          accompanying notes are an integral part of these
          financial statements.
 F-3
  **IsoRay,
          Inc.**
 (formerly
          Century Park Pictures Corporation)
 **Statements
          of Operations and Comprehensive Loss**
 Nine
          months ended June 30, 2005 and
 Years
          ended September 30, 2004 and 2003
 
 
 Nine
                    months
                  ended
                  June
                    30,
                  2005
                
                
                Year
                  ended
                  September
                    30,
                  2004
                
                
                Year
                  ended
                  September
                    30,
                  2003**Revenues**
                
                $
                —
                
                $
                —
                
                $
                —**Expenses**General
                    and administrative expenses
                
                
                30,128
                
                
                9,095
                
                
                19,022Officer
                    compensation
                
                
                (304,500
                )
                
                —
                
                
                —**Total
                    expenses**
                
                
                (274,372
                )
                
                —
                
                
                —**Income
                    (Loss) from operations**
                
                
                274,372
                
                
                (9,095
                )
                
                (19,022
                )**Other
                    Expense**Interest
                    expense
                
                
                —
                
                
                (2,104
                )
                
                (41,005
                )**Income
                    (Loss) before provision**
                  **for
                    income taxes and extraordinary item**
                
                
                274,372
                
                
                (11,199
                )
                
                (60,027
                )**Provision
                    for income taxes**
                
                
                —
                
                
                —
                
                
                —**Income
                    (Loss) before extraordinary item**
                
                
                274,372
                
                
                (11,199
                )
                
                (60,027
                )**Extraordinary
                    item**Extinguishment
                    of notes payableand
                    accrued interest, net of income taxes
                
                
                —
                
                
                86,956
                
                
                —**Net
                    Income (Loss)**
                
                
                274,372
                
                
                75,757
                
                
                (60,027
                )**Other
                    Comprehensive Income**
                
                
                —
                
                
                —
                
                
                —**Comprehensive
                    Income (Loss)**
                
                
                —
                
                
                —
                
                
                —Income
                    (Loss) per weighted-average
                  share
                    of common stock outstanding,
                  computed
                    on Net Loss — basic and fully dilutedFrom
                    continuing operations
                
                $
                (0.11
                )
                $
                (0.01
                )
                $
                (0.07
                )From
                    extraordinary item
                
                
                0.00
                
                
                0.04
                
                
                0.00$
                (0.11
                )
                $
                (0.03
                )
                $
                (0.07
                )Weighted-average
                    number of sharesof
                    common stock outstanding
                
                
                2,429,027
                
                
                2,360,690
                
                
                804,619
 
 The
          accompanying notes are an integral part of these financial
          statements.
  F-4
  **IsoRay,
          Inc.**
 (formerly
          Century Park Pictures Corporation)
 **Statement
          of Changes in Shareholders’ Equity**
 Nine
          months ended June 30, 2005 and
 Years
          ended September 30, 2004 and 2003
 
 Common
                    StockShares
                
                
                Amount
                
                
                Additionalpaidin capital
                
                
                Accumulateddeficit
                
                
                Total**Balances
                    at October 1, 2002**
                
                
                9,886,641
                
                $
                9,887
                
                $
                6,191,566
                
                $
                (7,284,468
                )
                $
                (1,083,015
                )Effect
                    of April 29, 20051-for-30
                    reverse stock split
                
                
                (9,557,317
                )
                
                (9,558
                )
                
                9,558
                
                
                —
                
                
                —**Balances
                    at****October
                    1, 2002, as reset**
                
                
                329,324
                
                
                329
                
                
                6,201,124
                
                
                (7,284,468
                )
                
                (1,083,015
                )Conversion
                    of notes payableand
                    accrued interest payableto
                    common stock
                
                
                1,770,230
                
                
                1,770
                
                
                529,299
                
                
                —
                
                
                531,069Forgiveness
                    of accrued interest
                
                
                —
                
                
                —
                
                
                6,766
                
                
                —
                
                
                6,766Contribution
                    of imputed intereston
                    suspended interest onnotes
                    payable
                
                
                —
                
                
                —
                
                
                41,005
                
                
                —
                
                
                41,005Net
                    loss for the year
                
                
                —
                
                
                —
                
                
                —
                
                
                (60,027
                )
                
                (60,027
                )**Balances
                    at****September
                    30, 2003**
                
                
                2,099,554
                
                
                2,099
                
                
                6,778,194
                
                
                (7,344,495
                )
                
                (564,202
                )Conversion
                    of notes payableand
                    accrued interest payableto
                    common stock
                
                
                289,194
                
                
                290
                
                
                86,468
                
                
                —
                
                
                86,758Contribution
                    of imputed interest onsuspended
                    interest on notes payable
                
                
                —
                
                
                —
                
                
                2,104
                
                
                —
                
                
                2,104Common
                    stock issued fordebt
                    conversion services
                
                
                26,237
                
                
                26
                
                
                7,844
                
                
                —
                
                
                7,870Net
                    income for the year
                
                
                —
                
                
                —
                
                
                —
                
                
                75,757
                
                
                75,757**Balances
                    at****September
                    30, 2004**
                
                
                2,414,985
                
                
                2,415
                
                
                6,874,610
                
                
                (7,268,738
                )
                
                (391,713
                )Sale
                    of common stockfor
                    cash
                
                
                83,334
                
                
                83
                
                
                84,917
                
                
                —
                
                
                85,000Contributed
                    capital
                
                
                
                
                
                —
                
                
                43,573
                
                
                —
                
                
                43,573Net
                    income for the nine months
                
                
                —
                
                
                —
                
                
                —
                
                
                274,372
                
                
                274,372**Balances
                    at****June
                    30, 2005**
                
                
                2,498,319
                
                $
                2,498
                
                $
                7,003,100
                
                $
                (6,994,366
                )
                $
                11,232
 
  The
          accompanying notes are an integral part of these
          financial statements.
 F-5
 **IsoRay,
          Inc.**(formerly Century Park Pictures Corporation)
 **Statements
          of Cash Flows**
 Nine
          months ended June 30, 2005 and
 Years
          ended September 30, 2004 and 2003
 
 Nine
                    monthsended
                    June 30,2005
                
                
                Yearended
                  September
                    30,2004
                
                
                Yearended
                    September 30,2003**Cash
                    Flows from Operating Activities**Net
                    Income (Loss)
                
                $
                274,372
                
                $
                75,757
                
                $
                (60,027
                )Adjustments
                    to reconcile net income to net cashprovided
                    by operating activitiesExtinguishment
                    of notes payable and accrued interest
                
                
                —
                
                
                (86,956
                )
                
                —Consulting
                    fees paid with common stock
                
                
                —
                
                
                7,870
                
                
                —Contribution
                    of interest expense related tosuspended
                    interest payable on notes payable
                
                
                —
                
                
                2,104
                
                
                41,005Increase
                    (Decrease) inAccounts
                    payable and other accrued expenses
                
                
                (333,540
                )
                
                (8,632
                )
                
                —**Net
                    cash used in operating activities**
                
                
                (59,168
                )
                
                (9,857
                )
                
                (19,022
                )**Cash
                    Flows from Investing Activities**
                
                
                —
                
                
                —
                
                
                —**Cash
                    Flows from Financing Activities**Proceeds
                    from sale of common stock
                
                
                85,000
                
                
                —
                
                
                —Funds
                    advanced by officer/shareholder
                
                
                6,735
                
                
                9,857
                
                
                19,022**Net
                    cash provided by financing activities**
                
                
                91,755
                
                
                9,857
                
                
                19,022**Increase
                    (Decrease) in Cash and Cash Equivalents**
                
                
                32,587
                
                
                —
                
                
                —Cash
                    and cash equivalents at beginning of period
                
                
                —
                
                
                —
                
                
                —Cash
                    and cash equivalents at end of period
                
                $
                32,587
                
                $
                —
                
                $
                —**Supplemental
                    Disclosures of Interest and Income Taxes Paid**Interest
                    paid during the period
                
                $
                —
                
                $
                —
                
                $
                —Income
                    taxes paid (refunded)
                
                $
                —
                
                $
                —
                
                $
                —
  The
          accompanying notes are an integral part of these
          financial statements.
 F-6
  **IsoRay,
          Inc.**
 (formerly
          Century Park Pictures Corporation)
  **Notes
          to Financial Statements**
 
 
 **Note
          A - Organization and Description of Business**
 
 Century
          Park Pictures Corporation (Company) was incorporated in 1983 in accordance
          with
          the Laws of the State of Minnesota.
 
 In
          prior
          periods, the Company developed, produced and marketed various entertainment
          properties, including without limitation, the intellectual product(s) of
          entities engaged in the motion picture, television, and theatrical state
          productions, such as creative writers, producers and directors, for the
          motion
          picture, pay/cable and commercial television markets.
 
 The
          Company had no operations, assets or liabilities since its fiscal year
          ended
          September 30, 1999 through May 27, 2005.
 
 On
          May
          27, 2005, the Company’s Board of Directors reallocated the Company’s authorized
          capital stock into 2 categories with the designation of preferred stock.
          The
          effect of this action was to allocate the authorized aggregate 200,000,000
          shares of capital stock into 194,000,000 shares of $0.001 par value Common
          Stock
          and 6,000,000 shares of $0.001 par value Preferred Stock. As filed with
          the
          State of Minnesota on June 29, 2005, the Board of Directors allocated the
          6,000,000 shares of Preferred Stock as follows: 1,000,000 shares as $0.001
          par
          value Class A Convertible Preferred Stock and 5,000,000 shares as $0.001
          par
          value Class B Convertible Preferred Stock. The effect of this action is
          reflected in the accompanying financial statements as of the first day
          of the
          first period presented.
 
 On
          May
          27, 2005, the Company; a newly-formed, wholly-owned subsidiary, Century
          Park
          Transitory Subsidiary, Inc., a Delaware corporation (Merger Subsidiary)
          , Thomas
          Scallen and Anthony Silverman, shareholders of the Company, and IsoRay
          Medical,
          Inc., a Delaware corporation (IsoRay) entered into a Merger Agreement.
          Pursuant
          to the Merger Agreement, the Merger Subsidiary will be merged with and
          into
          IsoRay and IsoRay will become a wholly-owned subsidiary of the Company
          (Merger).
          In the Merger, the IsoRay stockholders are entitled to receive approximately
          82%
          of the then outstanding shares of common stock of the Company. The Merger
          Agreement is subject to the satisfaction of certain conditions, including
          the
          approval of the Merger by stockholders of IsoRay representing a majority
          of the
          outstanding shares of common stock of IsoRay entitled to vote, which occurred
          on
          June 28, 2005), the granting of certain "piggy-back" and demand registration
          rights to the purchasers of the certain debentures of IsoRay, Anthony Silverman
          and certain other affiliates of the Company, the agreements of the officers
          and
          directors of IsoRay to lock-up the shares of the Company received in the
          Merger
          for a period of one year from the closing of the Merger, the agreements
          of
          Thomas Scallen and Anthony Silverman to escrow certain shares of common
          stock of
          the Company, and the receipt by IsoRay from Anthony Silverman or his associates
          of One Million Dollars as the purchase price of certain securities of IsoRay
          before the closing.
 
 On
          July
          28, 2005, the Merger contemplated by the Merger Agreement dated May 27,
          2005 was
          completed with the filing of a Certificate of Merger with the Secretary
          of State
          of Delaware, merging Century Park Transitory Subsidiary, Inc. into IsoRay
          Medical, Inc. As a result of the Merger and pursuant to the Merger Agreement,
          IsoRay Medical, Inc. became a wholly-owned subsidiary of the Company. The
          Company concurrently changed its name to IsoRay, Inc.
 
 The
          Company issued shares of its common stock and shares of its preferred stock
          to
          holders of common and preferred stock of IsoRay Medical, Inc. at a rate
          of
          0.842362 share of the Company’s common stock for each share of IsoRay Medical,
          Inc. stock. Options and warrants to purchase common and preferred stock
          of
          IsoRay Medical, Inc. will also be converted at the same rate into options
          and
          warrants to purchase common and preferred stock of the Company. At the
          time of
          the Merger and following its recent 1:30 reverse stock split, the Company
          had
          2,498,319 shares of common stock outstanding. Following the Merger, the
          Company
          has approximately 10,237,797 shares of common and preferred stock outstanding.
          The total amount of shares outstanding, on a fully-diluted basis, post
          merger
          will be 13,880,822, which includes not only shares of common stock, but
          also
          shares of preferred stock, warrants, options and convertible debentures
          that
          could be exercised or converted into shares of common stock. Following
          the
          Merger, on a fully diluted basis, the shareholders of IsoRay Medical, Inc.
          own
          82% of the Company’s outstanding securities.
  F-7
 
 **IsoRay,
          Inc.**
 (formerly
          Century Park Pictures Corporation)
 
 **Notes
          to Financial Statements - Continued**
 
 **Note
          B - Preparation of Financial Statements**
 
 The
          acquisition of IsoRay on July 28, 2005, by the Company effected a change
          in
          control and was accounted for as a “reverse acquisition” whereby IsoRay is the
          accounting acquiror for financial statement purposes. Accordingly, for
          all
          periods subsequent to July 28, 2005, the financial statements of the Company
          reflect the historical financial statements of IsoRay from the inception
          of each
          respective entity composing IsoRay Medical, Inc. at the July 28, 2005 change
          in
          control transaction and the operations of the Company subsequent to the
          July 28,
          2005 transaction.
 
 The
          Company originally had a September 30 year-end. As a result of the July
          28, 2005
          reverse acquisition transaction, the Company’s Board of Directors changed
          IsoRay, Inc.’s (formerly Century Park Pictures Corporation) year-end to
          June 30 to correspond to the year end of its then-newly acquired
          subsidiary, IsoRay Medical, Inc.
 
 The
          Company and its subsidiaries follow the accrual basis of accounting in
          accordance with accounting principles generally accepted in the United
          States of
          America
 
 The
          preparation of financial statements in conformity with accounting principles
          generally accepted in the United States of America requires management
          to make
          estimates and assumptions that affect the reported amounts of assets and
          liabilities and disclosure of contingent assets and liabilities at the
          date of
          the financial statements and the reported amounts of revenues and expenses
          during the reporting period. Actual results could differ from those
          estimates.
 
 Management
          further acknowledges that it is solely responsible for adopting sound accounting
          practices, establishing and maintaining a system of internal accounting
          control
          and preventing and detecting fraud. The Company’s system of internal accounting
          control is designed to assure, among other items, that 1) recorded transactions
          are valid; 2) valid transactions are recorded; and 3) transactions are
          recorded
          in the proper period in a timely manner to produce financial statements
          which
          present fairly the financial condition, results of operations and cash
          flows of
          the Company for the respective periods being presented
 
 For
          segment reporting purposes, the Company operated in only one industry segment
          during the periods represented in the accompanying financial statements
          and
          makes all operating decisions and allocates resources based on the best
          benefit
          to the Company as a whole.
 
 **Note
          C - Going Concern Uncertainty**
 
 The
          Company has effectively had no operations, assets or liabilities since
          its
          fiscal year ended September 30, 1999.
 
 The
          Company had no operations, assets or liabilities since its fiscal year
          ended
          September 30, 1999 through June 28, 2005.
 
 The
          Company formed a new wholly-owned subsidiary, Century Park Transitory
          Subsidiary, Inc., (a Delaware corporation) (Merger Corporation) to function
          as a
          merger subsidiary for the reverse acquisition of IsoRay Medical, Inc.,
          a
          Delaware corporation (IsoRay). On May 27, 2005, the Company, the Merger
          Subsidiary and IsoRay entered into a Merger Agreement, dated May 27, 2005.
          On
          July 28, 2005, the May 27, 2005 Merger Agreement was consummated with the
          filing
          of a Certificate of Merger with the Secretary of State of Delaware, merging
          Century Park Transitory Subsidiary, Inc. into IsoRay Medical, Inc. As a
          result
          of the Merger and pursuant to the Merger Agreement, IsoRay Medical, Inc.
          became
          a wholly-owned subsidiary of the Company.
 
 F-8
  **IsoRay,
          Inc.**
 (formerly
          Century Park Pictures Corporation)
 
 **Notes
          to Financial Statements - Continued**
 
 **Note
          C - Going Concern Uncertainty - Continued**
 
 IsoRay
          is
          a development stage enterprise, and as such, has a limited operating history
          and
          its future success is subject to the expenses, risks and uncertainties
          frequently encountered by companies in similar stages of development. These
          potential risks include failure to acquire adequate financing to fund further
          development of its products; failure to obtain and operate a production
          facility; failure to successfully create a market for its products; and
          other
          risks and uncertainties.
 
 Management’s
          plans to raise additional financing include the sale of additional equity
          or
          borrowings. Management expects to obtain the necessary financing, however,
          no
          assurance can be given that such financing will be completed on terms acceptable
          to the Company. If the Company is not able to obtain additional financing,
          the
          development of the Company’s products could be delayed or suspended.
 
 **Note
          D - Summary of Significant Accounting Policies**
 
 1.  Cash
          and cash equivalents
 
 For
          Statement of Cash Flows purposes, the Company considers all cash on hand
          and in
          banks, certificates of deposit and other highly-liquid investments with
          maturities of three months or less, when purchased, to be cash and cash
          equivalents.
 
 2.  Property
          and equipment
 
 Property
          and equipment consists of furniture and fixtures and is stated at the lower
          of
          depreciated cost or net realizable value.
 
 3.  Income
          Taxes
 
 The
          Company uses the asset and liability method of accounting for income taxes.
          At
          June 30, 2005, September 30, 2004 and 2003, respectively, the deferred
          tax asset
          and deferred tax liability accounts, as recorded when material to the financial
          statements, are entirely the result of temporary differences. Temporary
          differences represent differences in the recognition of assets and liabilities
          for tax and financial reporting purposes, primarily accumulated depreciation
          and
          amortization, allowance for doubtful accounts and vacation
          accruals.
 
 As
          of
          June 30, 2005, September 30, 2004 and 2003, the deferred tax asset related
          to
          the Company’s net operating loss carryforward is fully reserved. Due to the
          provisions of Internal Revenue Code Section 338, the Company may have limited
          net operating loss carryforwards available to offset financial statement
          or tax
          return taxable income in future periods as a result of any future change
          in
          control involving 50 percentage points or more of the issued and outstanding
          securities of the Company.
 
 4.  Income
          (Loss) per share
 
 Basic
          earnings (loss) per share is computed by dividing the net income (loss)
          available to common shareholders by the weighted-average number of common
          shares
          outstanding during the respective period presented in our accompanying
          financial
          statements.
 
 Fully
          diluted earnings (loss) per share is computed similar to basic income (loss)
          per
          share except that the denominator is increased to include the number of
          common
          stock equivalents (primarily outstanding options and warrants).
 
 Common
          stock equivalents represent the dilutive effect of the assumed exercise
          of the
          outstanding stock options and warrants, using the treasury stock method,
          at
          either the beginning of the respective period presented or the date of
          issuance,
          whichever is later, and only if the common stock equivalents are considered
          dilutive based upon the Company’s net income (loss) position at the calculation
          date.
  F-9
  **IsoRay,
          Inc.**
 (formerly
          Century Park Pictures Corporation)
 
 **Notes
          to Financial Statements - Continued**
 
 **Note
          D - Summary of Significant Accounting Policies - Continued**
 
 At
          June
          30, 2005, September 30, 2004 and 2003, the Company has no outstanding stock
          warrants, options or convertible securities which could be considered as
          dilutive for purposes of the loss per share calculation.
 
 **Note
          E - Fair Value of Financial Instruments**
 
 The
          carrying amount of cash, accounts receivable, accounts payable and notes
          payable, as applicable, approximates fair value due to the short term nature
          of
          these items and/or the current interest rates payable in relation to current
          market conditions.
 
 Interest
          rate risk is the risk that the Company’s earnings are subject to fluctuations in
          interest rates on either investments or on debt and is fully dependent
          upon the
          volatility of these rates. The Company does not use derivative instruments
          to
          moderate its exposure to interest rate risk, if any.
 
 Financial
          risk is the risk that the Company’s earnings are subject to fluctuations in
          interest rates or foreign exchange rates and are fully dependent upon the
          volatility of these rates. The company does not use derivative instruments
          to
          moderate its exposure to financial risk, if any.
 
 **Note
          F - Notes Payable**
 
 On
          July
          31, 2002, the Company’s Board of Directors and the respective noteholders
          approved the extension of the ultimate maturity date of the notes through
          December 3, 2003. In conjunction with the extension, the noteholders agreed
          to
          discontinue the accrual of interest subsequent to July 31, 2002.
 
 The
          effect of the discontinuance of interest accruals subsequent to July 31,
          2002
          will be charged to operations as a component of interest expense with an
          offset
          to contributed additional paid-in capital to recognize the economic effect
          of
          the suspended and forgiven interest on these notes in the respective future
          period.
 
 On
          June
          25, 2003, noteholders aggregating $300,000 in outstanding principal and
          $231,900
          in accrued interest payable exercised their respective conversion rights
          and
          received an aggregate 53,106,900 pre-reverse split shares of restricted,
          common
          stock upon conversion.
 
 On
          December 3, 2003, the final ultimate maturity date, one remaining noteholder
          exercised his conversion rights and converted approximately $50,000 in
          principal
          and $36,758 in accrued interest payable into 8,675,800 pre-reverse split
          shares
          of restricted, unregistered common stock.
 
 On
          December 3, 2003, upon the failure to timely convert or post a timely claim
          for
          repayment, the Company’s Board of Directors, acting upon the advice of legal
          counsel, voided the remaining outstanding unconverted notes payable of
          approximately $50,000 and the associated accrued interest of approximately
          $36,956 and recognized a one-time gain on the technical forgiveness of
          these
          debts.
 
 For
          the
          respective years ended September 30, 2004 and 2003, the Company has recognized
          approximately $2,104 and $41,005 in additional paid-in capital for imputation
          of
          suspended interest on these notes.
 
 F-10
  **IsoRay,
          Inc.**
 (formerly
          Century Park Pictures Corporation)
 
 **Notes
          to Financial Statements - Continued**
 
 **Note
          G - Related Party Transactions**
 
 Through
          June 30, 2005, the Company’s former Chief Executive Officer advanced the Company
          approximately $44,500 to support operations, settle outstanding trade accounts
          payable and provide working capital. The advance was repayable upon demand
          and
          is non-interest bearing and is unsecured. Effective June 30, 2005, with
          the
          anticipation of the consummation of the reverse acquisition transaction
          with
          IsoRay Medical, Inc., as previously discussed, these advances were forgiven
          and
          reclassified as additional paid-in capital in the accompanying financial
          statements as of that date.
 
 Through
          December 31, 2004, the Company owed the Company's Chief Executive Officer
          approximately $354,500 for cumulative accrued salary. During the quarter
          ended
          March 31, 2005, the Company’s former Chief Executive Officer forgave
          approximately $304,500 in accrued salary for prior periods.
 
 **Note
          H - Income Taxes**
 
 The
          components of income tax (benefit) expense for the nine months ended June
          30,
          2005 and for each of the years ended September 30, 2004 and 2003, respectively,
          are as follows:
 
 Nine
                    months
                  ended
                    June 30,2005
                
                
                Yearended
                  September
                    30,2004
                
                
                Yearended
                    September 30,
                    2003Federal:Current
                
                $
                —
                
                $
                —
                
                $
                —Deferred
                
                
                —
                
                
                —
                
                
                ——
                
                
                —State:Current
                
                $
                —
                
                $
                —
                
                $
                —Deferred
                
                
                —
                
                
                —
                
                
                ——
                
                
                —Total
                
                $
                —
                
                $
                —
                
                $
                —
 
 As
          of
          June 30, 2005, the Company has a Federal net operating loss carryforward
          of
          approximately $3,100,000 and a State net operating loss carryforward of
          approximately $790,000 to offset future taxable income. Subject to current
          regulations, these carryforwards expire, if unused, through 2015. Due to
          the
          July 2005 business combination transaction, the utilization of these
          carryforwards, if any, will be governed by the appropriate Federal and
          State
          statutes.
 
 The
          Company's income tax expense (benefit) for the nine months ended June 30,
          2005
          and for each of the years ended September 30, 2004 and 2003, respectively,
          differed from the statutory federal rate of 34 percent as follows:
 
 Nine
                    months
                  ended
                    June 30,2005
                
                
                Yearended
                  September
                    30,2004
                
                
                Yearended
                    September 30,2003Statutory
                    rate applied to earnings (loss) before income taxes
                
                $
                93,300
                
                $
                25,750
                
                $
                (20,400
                )Increase
                    (decrease) in income taxes resulting from:State
                    income taxes
                
                
                —
                
                
                —
                
                
                —Other,
                    including reserve for deferred tax asset
                
                
                (93,300
                )
                
                (25,750
                )
                
                20,400Income
                    tax expense
                
                $
                —
                
                $
                —
                
                $
                —
 
 
 
 F-11
  **IsoRay,
          Inc.**
 (formerly
          Century Park Pictures Corporation)
 
 **Notes
          to Financial Statements - Continued**
 
 **Note
          H - Income Taxes - Continued**
 
 Temporary
          differences, consisting primarily of statutory differences between the
          financial
          statement carrying amounts and tax bases of assets and liabilities give
          rise to
          deferred tax assets and liabilities as of the nine months ended June 30,
          2005
          and each of the respective years ended September 30, 2004 and 2003.
 
 Nine
                    months ended June 30, 2005Federal
                
                
                State
                
                
                TotalDeferred
                    tax assets:Other
                    (current)
                
                $
                96,000
                
                $
                35,000
                
                $
                131,000Net
                    operating loss carryforwards (non-current)
                
                
                932,000
                
                
                77,000
                
                
                1,009,0001,028,000
                
                
                112,000
                
                
                1,140,000Valuation
                    allowance
                
                
                (1,028,000
                )
                
                (112,000
                )
                
                (1,140,000
                )Net
                    Deferred tax asset
                
                $
                —
                
                $
                —
                
                $
                —Deferred
                    tax liabilities
                
                $
                —
                
                $
                —
                
                $
                —Year
                    ended September 30,
                    2004Federal
                
                
                State
                
                
                TotalDeferred
                    tax assets:Other
                    (current)
                
                $
                96,000
                
                $
                35,000
                
                $
                131,000Net
                    operating loss carryforwards (non-current)
                
                
                932,000
                
                
                77,000
                
                
                1,009,0001,028,000
                
                
                112,000
                
                
                1,140,000Valuation
                    allowance
                
                
                (1,028,000
                )
                
                (112,000
                )
                
                (1,140,000
                )Net
                    Deferred tax asset
                
                $
                —
                
                $
                —
                
                $
                —Deferred
                    tax liabilities
                
                $
                —
                
                $
                —
                
                $
                —
 
 Year
                    ended September 30, 2003Federal
                
                
                State
                
                
                TotalDeferred
                    tax assets:Other
                    (current)
                
                $
                96,000
                
                $
                35,000
                
                $
                131,000Net
                    operating loss carryforwards (non-current)
                
                
                932,000
                
                
                77,000
                
                
                1,009,0001,028,000
                
                
                112,000
                
                
                1,140,000Valuation
                    allowance
                
                
                (1,028,000
                )
                
                (112,000
                )
                
                (1,140,000
                )Net
                    Deferred tax asset
                
                $
                —
                
                $
                
                
                $Deferred
                    tax liabilities
                
                $
                
                
                $
                
                
                $
 
 During
          the nine months ended June 30, 2005 and for each of the years ended September
          30, 2004 and 2003, respectively, the valuation allowance increased (decreased)
          by approximately $-0-, $-0- and $-0-. Realization of deferred tax assets
          is
          dependent upon sufficient future taxable income during the period that
          deductible temporary differences and carryforwards are expected to be available
          to reduce taxable income.
  F-12
  **IsoRay,
          Inc.**
 (formerly
          Century Park Pictures Corporation)
 
 **Notes
          to Financial Statements - Continued**
 
 **Note
          I - Preferred Stock Transactions**
 
 On
          May
          27, 2005, and filed with the State of Minnesota on July 27, 2005, the Company’s
          Board of Directors created two series of shares of Preferred Stock designated
          as
          Series A Convertible Preferred Stock and Series B Convertible Preferred
          Stock.
          The Series A Convertible Preferred Stock (the Series A Stock) consists
          of an
          aggregate of 1,000,000 shares, $0.001 par value, and the Series B Convertible
          Preferred Stock (Series B Stock) consists 5,000,000 shares, $0.001 par
          value
          (collectively, Preferred Stock). The Preferred Stock has preferences,
          limitations and relative rights in preference to the holders of any other
          stock
          of the Company (Junior Stock).
 
 Dividends
 
 Dividends
          shall be paid, out of funds legally available for that purpose, with respect
          to
          all outstanding shares of Series A Stock in an amount equal to ten percent
          (10%)
          per annum of the stated value per share of the Series A Stock, which shall
          be
          $1.20 per share. Such dividends shall only be paid or accrue through March
          31,
          2007. Beginning April 1, 2007, no dividends shall be paid with respect
          to the
          outstanding shares of Series A Stock.
 
 Dividends
          shall be paid, out of funds legally available for that purpose, with respect
          to
          all outstanding shares of Series B Stock in an amount equal to fifteen
          percent
          (15%) per annum of the stated value per share of the Series B Stock, which
          shall
          be $1.20 per share (Dividend Payment Amount). Such dividends shall be payable
          in
          full on or before December 31st of each year the Series B Stock is outstanding
          (Dividend Payment Date). Each such dividend shall be paid to the holders
          of
          record of the Series B Stock as their names appear on the share register
          of the
          Company on the date which is fifty (50) days preceding December 31 st of each
          year (Record Date). If, on the Dividend Payment Date, the holders of the
          Series
          B Stock shall not have received the full dividends provided for, then such
          dividends shall cumulate, at the rate of 15% per annum on the Dividend
          Payment
          Amount, beginning to accrue on the Dividend Payment Date whether or not
          earned
          or declared, with additional dividends thereon for each succeeding year
          during
          which dividends shall remain unpaid. Unpaid dividends for any period less
          than a
          full year shall cumulate on a day-to-day basis and shall be computed on
          the
          basis of a 360-day year.
 
 The
          Company shall not declare or pay on any Junior Stock any dividend whatsoever,
          whether in cash, property or otherwise (other than dividends payable in
          shares
          of the class or series upon which such dividends are declared or paid),
          nor
          shall the Company make any distribution on any Junior Stock, unless all
          dividends to which the holders of Preferred Stock shall have been entitled
          shall
          have been paid or declared and a sum of money sufficient for the payment
          thereof
          set apart.
 
 Voting
          Rights
 
 Except
          as
          otherwise provided herein or by contract, or as required by law, the Preferred
          Stock shall be voted equally with the shares of the Common Stock and not
          as a
          separate class, at any annual or special meeting of stockholders of the
          Company,
          and may act by written consent in the same manner as the Common Stock,
          in either
          case upon the following basis: each share of Preferred Stock shall be entitled
          to such number of votes as shall be equal to the voting power of one (1)
          share
          of Common Stock at the time of the vote.
 
 Notwithstanding
          anything to the contrary in the Company's Articles of Incorporation or
          Bylaws,
          for so long as any shares of Preferred Stock remain outstanding, in addition
          to
          any other vote or consent required herein or by law, the vote or written
          consent
          of the holders of at least fifty percent (50%) of the outstanding Preferred
          Stock shall be necessary for effecting or validating the following
          actions:
 
 (i)  Any
          amendment, alteration, waiver or repeal of any provision of the Articles
          of
          Incorporation or the Bylaws of the Company (including any filing of a
          Certificate of Designation); or
 (ii)  Any
          bankruptcy, insolvency, dissolution or liquidation of the Company.
 
 
 F-13
  **IsoRay,
          Inc.**
 (formerly
          Century Park Pictures Corporation)
 
 **Notes
          to Financial Statements - Continued**
 
 **Note
          I - Preferred Stock Transactions - Continued**
 
 In
          addition to the vote or consent required above, the Company may not amend,
          alter, waive or repeal any provisions of the Articles of Incorporation
          or
          Certificate of Designation which would have a material adverse effect on
          the
          rights, privileges or preferences granted to either the Series A Stock
          or the
          Series B Stock without the vote or written consent of the holders of at
          least
          fifty percent (50%) of the outstanding affected shares.
 
 Liquidation
          Rights
 
 Upon
          any
          liquidation, dissolution, or winding up of the Company, whether voluntary
          or
          involuntary, the assets of the Company legally available for distribution,
          if
          any, shall be distributed ratably first, to the holders of the Series A
          Stock,
          second, to the holders of the Series B Stock and third, to the holders
          of the
          Common Stock.
 
 The
          following events shall be considered a liquidation under this
          Section:
 
 (i)  any
          consolidation or merger of the Company with or into any other corporation
          or
          other entity or person, or any other corporate reorganization, in which
          the
          stockholders of the Company immediately prior to such consolidation, merger
          or
          reorganization, own less than 50% of the Company's voting power immediately
          after such consolidation, merger or reorganization, or any transaction
          or series
          of related transactions to which the Company is a party in which in excess
          of
          fifty percent (50%) of the Company's voting power is transferred, excluding
          any
          consolidation or merger effected exclusively to change the domicile of
          the
          Company (Acquisition); or
 (ii)  a
          sale,
          lease or other disposition of all or substantially all of the assets of
          the
          Company (Asset Transfer).
 
 In
          the
          event of any liquidation event as defined, if the consideration received
          by the
          Company is other than cash, its value will be deemed its fair market value
          as
          determined in good faith by the Board. Any securities shall be valued as
          follows:
 
 (i)  Securities
          not subject to investment letter or other similar restrictions on free
          marketability:
 (A)  If
          traded
          on a securities exchange or through the NASDAQ National Market, the value
          shall
          be deemed to be the average closing price of the securities on such quotation
          system for the ten days prior to and including the date of closing;
 (B)  If
          actively traded over-the-counter, the value shall be deemed to be the closing
          bid or sale price (whichever is applicable) as of the date of closing;
          and
 (C)  If
          there
          is no active public market, the value shall be the fair market value thereof,
          as
          determined by the Board.
 (ii)  The
          method of valuation of securities subject to investment letter or other
          restrictions on free marketability (other than restrictions arising solely
          by
          virtue of a stockholder's status as an affiliate or former affiliate) shall
          be
          to make an appropriate discount from the market value determined, as defined
          above, to reflect the approximate fair market value thereof, as determined
          by
          the Board.
 
 Conversion
 
 The
          holders of the Preferred Stock shall have the following rights with respect
          to
          the conversion of the Preferred Stock into shares of Common Stock (Conversion
          Rights):
  F-14
  **IsoRay,
          Inc.**
 (formerly
          Century Park Pictures Corporation)
 
 **Notes
          to Financial Statements - Continued**
 
 **Note
          I - Preferred Stock Transactions - Continued**
 
 Optional
          Conversion
 
 Any
          outstanding shares of Preferred Stock may, at the option of the holder,
          be
          converted at any time into fully-paid and nonassessable shares of Common
          Stock.
          The number of shares of Common Stock to which a holder of Preferred Stock
          shall
          be entitled upon conversion shall be one (1) share of Common Stock for
          each
          share of Preferred Stock being converted (Preferred Stock Conversion Rate).
          Such
          initial Preferred Stock Conversion Rate shall be adjusted from time to
          time as
          defined in the Certificate of Designation.
 
 Automatic
          Conversion
 
 Each
          share of Preferred Stock shall automatically be converted into shares of
          Common
          Stock, based on the then-effective Preferred Stock Conversion Rate, immediately
          upon the closing of a firmly underwritten public offering pursuant to an
          effective registration statement under the Securities Act of 1933, as amended,
          covering the offer and sale of Common Stock for the account of the Company
          in
          which the gross proceeds to the Company are at least $4,000,000. Upon such
          automatic conversion, any declared and unpaid dividends shall be paid in
          accordance with the appropriate provisions of Certificate of
          Designation.
 
 No
          fractional shares of Common Stock shall be issued upon conversion of Preferred
          Stock. All shares of Common Stock (including fractions thereof) issuable
          upon
          conversion of more than one share of Preferred Stock by a holder thereof
          shall
          be aggregated for purposes of determining whether the conversion would
          result in
          the issuance of any fractional share. If, after the aforementioned aggregation,
          the conversion would result in the issuance of any fractional share, the
          Company
          shall, in lieu of issuing any fractional share, pay cash equal to the product
          of
          such fraction multiplied by the Common Stock's fair market value (as determined
          by the Board) on the date of conversion.
 
 Reservation
          of Stock Issuable Upon Conversion
 
 The
          Company shall at all times reserve and keep available out of its authorized
          but
          unissued shares of Common Stock, solely for the purpose of effecting the
          conversion of the shares of the Preferred Stock, such number of its shares
          of
          Common Stock as shall from time to time be sufficient to effect the conversion
          of all outstanding shares of the Preferred Stock. If at any time the number
          of
          authorized but unissued shares of Common Stock shall not be sufficient
          to effect
          the conversion of all then outstanding shares of the Preferred Stock, the
          Company will take such corporate action as may, in the opinion of its counsel,
          be necessary to increase its authorized but unissued shares of Common Stock
          to
          such number of shares as shall be sufficient for such purpose.
 
 Adjustment
          for Stock Splits and Combinations
 
 If
          the
          Company shall at any time or from time to time after the filing date of
          the
          Certificate of Designation (the Original Issue Date) effect a subdivision
          of the
          outstanding Common Stock without a corresponding subdivision of the Preferred
          Stock, the Preferred Stock Conversion Rate in effect immediately before
          that
          subdivision shall be proportionately adjusted. Conversely, if the Company
          shall
          at any time or from time to time after the Original Issue Date combine
          the
          outstanding shares of Common Stock into a smaller number of shares without
          a
          corresponding combination of the Preferred Stock, the Preferred Stock Conversion
          Rate in effect immediately before the combination shall be proportionately
          adjusted. Any adjustment shall become effective at the close of business
          on the
          date the subdivision or combination becomes effective.
 
 F-15
 
 **IsoRay,
          Inc.**
 (formerly
          Century Park Pictures Corporation)
 
 **Notes
          to Financial Statements - Continued**
 
 **Note
          I - Preferred Stock Transactions - Continued**
 
 Adjustment
          for Reclassification, Exchange and Substitution
 
 If
          at any
          time or from time to time after the Original Issue Date, the Common Stock
          issuable upon the conversion of the Preferred Stock is changed into the
          same or
          a different number of shares of any class or classes of stock, whether
          by
          recapitalization, reclassification or otherwise (other than an Acquisition
          or
          Asset Transfer as defined or a subdivision or combination of shares or
          stock
          dividend or a reorganization, merger, consolidation or sale of assets as
          otherwise provided for), in any such event each holder of Preferred Stock
          shall
          have the right thereafter to convert such stock into the kind and amount
          of
          stock and other securities and property receivable upon such recapitalization,
          reclassification or other change by holders of the maximum number of shares
          of
          Common Stock into which such shares of Preferred Stock could have been
          converted
          immediately prior to such recapitalization, reclassification or change,
          all
          subject to further adjustment as provided herein or with respect to such
          other
          securities or property by the terms thereof.
 
 Reorganizations,
          Mergers or Consolidations
 
 If
          at any
          time or from time to time after the Original Issue Date, there is a capital
          reorganization of the Common Stock or the merger or consolidation of the
          Company
          with or into another corporation or another entity or person (other than
          an
          Acquisition or Asset Transfer or a recapitalization, subdivision, combination,
          reclassification, exchange or substitution of shares as otherwise provided
          for),
          as a part of such capital reorganization, provision shall be made so that
          the
          holders of the Preferred Stock shall thereafter be entitled to receive
          upon
          conversion of the Preferred Stock the number of shares of stock or other
          securities or property of the Company to which a holder of the number of
          shares
          of Common Stock deliverable upon conversion would have been entitled on
          such
          capital reorganization, subject to adjustment in respect of such stock
          or
          securities by the terms thereof. In any such case, appropriate adjustment
          shall
          be made in the application of the appropriate provisions with respect to
          the
          rights of the holders of Preferred Stock after the capital reorganization
          to the
          end that the various conversion provisions (including adjustment of the
          Preferred Stock Conversion Rate then in effect and the number of shares
          issuable
          upon conversion of the Preferred Stock) shall be applicable after that
          event and
          be as nearly equivalent as practicable.
 
 Certificate
          of Adjustment
 
 In
          each
          case of an adjustment or readjustment of the Preferred Stock Conversion
          Rate or
          the number of shares of Common Stock or other securities issuable upon
          conversion of the Preferred Stock, if the Preferred Stock is then convertible,
          as previously defined, the Company, at its expense, shall compute such
          adjustment or readjustment in accordance with the provisions hereof and
          prepare
          a certificate showing such adjustment or readjustment, and shall mail such
          certificate, by first class mail, postage prepaid, to each registered holder
          of
          Preferred Stock at the holder's address as shown in the Company's books.
          The
          certificate shall set forth such adjustment or readjustment, showing in
          detail
          the facts upon which such adjustment or readjustment is based, including
          a
          statement of (I) the Preferred Stock Conversion Rate at the time in effect,
          and
          (ii) the type and amount, if any, of other property which at the time would
          be
          received upon conversion of the Preferred Stock.
 
 F-16
  **IsoRay,
          Inc.**
 (formerly
          Century Park Pictures Corporation)
 
 **Notes
          to Financial Statements - Continued**
 
 **Note
          I - Preferred Stock Transactions - Continued**
 
 Notices
          of Record Date
 
 Upon
          (i)
          any taking by the Company of a record of the holders of any class of securities
          for the purpose of determining the holders thereof who are entitled to
          receive
          any dividend or other distribution, or (ii) any Acquisition (as defined)
          or
          other capital reorganization of the Company, any reclassification or
          recapitalization of the capital stock of the Company, any merger or
          consolidation of the Company with or into any other corporation, or any
          Asset
          Transfer (as defined), or any voluntary or involuntary dissolution, liquidation
          or winding up of the Company, the Company shall mail to each holder of
          Preferred
          Stock at least ten (10) days prior to the record date specified therein
          (or such
          shorter period approved by a majority of the outstanding Preferred Stock)
          a
          notice specifying (A) the date on which any such record is to be taken
          for the
          purpose of such dividend or distribution and a description of such dividend
          or
          distribution, (B) the date on which any such Acquisition, reorganization,
          reclassification, transfer, consolidation, merger, Asset Transfer, dissolution,
          liquidation or winding up is expected to become effective, and (C) the
          date, if
          any, that is to be fixed as to when the holders of record of Common Stock
          (or
          other securities) shall be entitled to exchange their shares of Common
          Stock (or
          other securities) for securities or other property deliverable upon such
          Acquisition, reorganization, reclassification, transfer, consolidation,
          merger,
          Asset Transfer, dissolution, liquidation or winding up.
 
 No
          Dilution or Impairment
 
 Without
          the consent of the holders of then outstanding Preferred Stock, as required,
          the
          Company shall not amend its Articles of Incorporation or participate in
          any
          reorganization, transfer of assets, consolidation, merger, dissolution,
          issue or
          sale of securities or take any other voluntary action, for the purpose
          of
          avoiding or seeking to avoid the observance or performance of any of the
          terms
          to be observed or performed hereunder by the Company, but shall at all
          times in
          good faith assist in carrying out all such action as may be reasonably
          necessary
          or appropriate in order to protect the conversion rights of the holders
          of the
          Preferred Stock against dilution or other impairment.
 
 **Note
          J - Common Stock Transactions**
 
 On
          April
          29, 2005, the Company's Board of Directors approved and authorized a 1-for-30
          reverse split of the then issued and outstanding common stock of the Company.
          The reverse stock split did not change the number of authorized shares
          of common
          stock or the par value of the Company’s common stock. Except for any changes as
          a result of the treatment of fractional shares, each shareholder holds
          the same
          percentage of common stock outstanding immediately following the reverse
          stock
          split as such shareholder did immediately prior to the reverse stock split.
          The
          effect of this action is reflected in the accompanying financial statements
          as
          of the first day of the first period presented.
 
 On
          June
          25, 2003, the Company issued an aggregate 1,792,783 post-reverse split
          shares of
          restricted, unregistered common stock (53,783,500 pre-reverse split shares)
          in
          redemption of various outstanding notes payable in the face amount of
          approximately $300,000 and accrued interest payable of approximately $237,835,
          pursuant to the conversion terms of the respective notes. The valuation
          of this
          transaction was equal to the “fair value” of the Company’s common stock on the
          conversion date.
 
 On
          December 3, 2003, the Company issued 289,194 post-reverse split shares
          of
          restricted, unregistered common stock (8,675,800 pre-reverse split shares)
          in
          redemption of two (2) notes payable in the face amount of approximately
          $50,000
          and accrued interest payable of approximately $36,758, pursuant to the
          conversion terms of the respective notes. The valuation of this transaction
          was
          equal to the “fair value” of the Company’s common stock on the conversion date.
          The Company relied upon Section 4(2) of The Securities Act of 1933, as
          amended,
          for an exemption from registration of these shares and no underwriter was
          used
          in this transaction.
 
 F-17
 
 **IsoRay,
          Inc.**
 (formerly
          Century Park Pictures Corporation)
 
 **Notes
          to Financial Statements - Continued**
 
 
 **Note
          J - Common Stock Transactions - Continued**
 
 On
          December 3, 2003, the Company issued 26,237 post-reverse split shares of
          restricted, unregistered common stock (3,787,100 pre-reverse split shares)
          as
          compensation for fees associated with the conversion of the outstanding
          notes
          payable and accrued interest payable. This transaction was valued at
          approximately $7,871, which was equal to the “fair value” of the Company’s
          common stock on the conversion date. The Company relied upon Section 4(2)
          of The
          Securities Act of 1933, as amended, for an exemption from registration
          of these
          shares and no underwriter was used in this transaction.
 
 On
          or
          about May 2, 2005, the Company sold an aggregate 83,334 post-reverse split
          shares of unregistered, restricted common stock (2,500,000 pre-reverse
          split
          shares) for cash proceeds of approximately $85,000 to three (3) separate
          individuals, including 148,000 shares to the Company’s former President. The
          Company relied upon Section 4(2) of The Securities Act of 1933, as amended,
          for
          an exemption from registration of these shares and no underwriter was used
          in
          this transaction. The Company granted “piggy-back” registration rights to the
          holders of the shares of common stock which would entitle a holder to request
          that the Company register the common stock if the Company files a registration
          statement at any time prior to three years from the date the Company sold
          such
          shares of common stock. The Company has agreed to keep such registration
          statement current for up to 270 days. The Company has agreed to pay all
          expenses
          associated with any registration of the common stock except any underwriter's
          commissions or fees or any fees of others employed by a selling shareholder,
          including attorneys' fees; which shall be the responsibility of the selling
          shareholder.
 
 On
          July
          28, 2005, the Company issued approximately 7,739,478 post-reverse split
          shares
          of restricted, unregistered common stock for 100.0% of the issued and
          outstanding shares of IsoRay Medical, Inc. This transaction made IsoRay
          a
          wholly-owned subsidiary of the Company.
 
 **Note
          K - Commitments and Contingencies**
 
 The
          Company, prior to the July 2005 change in control transaction, leased office
          space under a noncancellable operating lease that expired on August 31,
          2002.
          The space was sub-leased to a separate company owned by the Company's then-CEO.
          The Company incurred no expense related to this lease during any period
          reflected in the accompanying financial statements.
 
 (Remainder
          of this page left blank intentionally)
 
      
 
 F-18
  **SIGNATURES**
 In
          accord
          with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended,
          the
          registrant caused this report to be signed on its behalf by the undersigned,
          thereunto duly authorized.
  
 **ISORAY,
          INC.**
 (formerly
          Century Park Pictures Corporation)
  Dated:October
                      10, 2005
                  /s/
                      Roger E. GirardRoger
                      E. GirardChief
                      Executive OfficerDated:October
                      10, 2005
                  /s/
                      Michael DunlopMichael
                      DunlopChief
                      Financial Officer
 In
          accordance with the Securities Exchange Act of 1934, as amended, this report
          has
          been signed below by the following persons on behalf of the registrant
          and in
          the capacities and on the dates indicated.
 
 Dated:October
                      10, 2005
                  /s/
                      Roger E. GirardRoger
                      E. GirardChief
                      Executive OfficerDated:October
                      10, 2005
                  /s/
                      Michael DunlopMichael
                      DunlopChief
                      Financial Officer and TreasurerDated:October
                      10, 2005
                  /s/
                      David J. SwanbergDavid
                      J. SwanbergVice
                      President-Operations,Corporate
                      Secretary and DirectorDated:October
                      10, 2005
                  /s/
                      Robert KauffmanRobert
                      KauffmanDirectorDated:October
                      10, 2005
                  /s/
                      Thomas LaVoyThomas
                      LaVoyDirectorDated:October
                      10, 2005
                  /s/
                      Stephen BoatwrightStephen
                      BoatwrightDirector
 
 45